Short Sale Basics: What You Need to Know

If you’ve been around the real estate block for a while, you already know that the term “short sale” is laughable. While it might sound like a super-fast transaction, short sales are infamous for their delays!

The “short” actually refers to the fact that the property is being sold “short” of the amount owed – in other words, the homeowner owes more than their home is currently worth. Short sales occur as an alternative to foreclosure. They’re not a great option for a homeowner as they’re going to walk away with zero debt, but they’re less damaging to one’s credit score than going into foreclosure.

Short sales are complex, and whether you’re considering buying a short sale or selling your home as one, you need to talk to someone with expertise. You should work with a real estate agent who is familiar with the intricacies of the short sale process, and think about getting legal or financial advice from a professional as well.

That said, we can’t furnish you with the depth of guidance you’ll need – it all depends on your unique situation – but here are some of the most basic things you need to know whether you’re planning to sell your home as a short sale or buy one.

 

Sellers

If you’re facing extreme financial hardship and it looks like your home might be foreclosed on, a short sale can be a way to minimize your losses. As you enter the process, remember that each step carries some uncertainty. Just because you begin working with a lender on the short sale package doesn’t mean you’re in the clear. Be patient and flexible, understanding that the short sale could fall apart.

So you’re underwater with your mortgage and getting to the place where you can no longer afford your monthly payments. Here are you basic steps to selling your home as a short sale:

·         Talk to an expert – before you begin, seek advice; try to get an idea of whether your home is a good candidate for this type of sale

·         Contact your lender – talk to the loss mitigation department about what your particular lender requires; the process can vary from lender to lender

·         Craft the hardship letter – straightforwardly state the reasons for your financial hardship and request that the lender resolve your debt by accepting the proceeds of the short sale

·         Complete the short sale package – depending on your lender, you may need to already have a qualified buyer with an offer

The big hinge of short sales is waiting for the lender to accept an offer after they’ve determined the minimum they’re willing to accept as the resolution of your debt. In general, it’s a good idea to accept more than one offer to present to the lender. Talk to an experienced short sale agent about which offers will be most likely to be accepted. And then wait.

 

Buyers

As a buyer, you need to go into a short sale process with no expectations and a flexible timeline. The delays caused by waiting for the short sale package to be completed and for an offer to be accepted can be arduous. Generally, it takes months for the lender to accept an offer, so you shouldn’t be in a rush to move.

Before beginning, talk with a short sale expert about the ins and outs of purchasing a short sale. While you can often negotiate for repairs in a traditional sale, there’s a lot less wiggle room with a short sale since the lender is already taking a loss.

When your offer is accepted by the seller, that’s a good sign, but it’s definitely not the end of the story. The lender’s acceptance is the one that counts. While they’re considering your offer, the home could go into foreclosure or other offers may come in that the lender prefers.

So if you want to buy a short sale, prepare to be patient and be flexible about the timeline and the short sale being successful.

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Sarah Louise Green lives in the San Francisco Bay Area and writes about national real estate trends, home financing, advice for buyers, and DIY projects for the home and garden. Follow Sarah on Twitter:@slouisegreen

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