What is a Short Sale ?
 Short Sale Process
 Short Sale FAQs

A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments.

By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (or foreclosure).

Check a real estate professional to determine whether your home and circumstances will qualify for short sales.

Verify the value of your property. If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value. If you are selling the property yourself, do your own market analysis of the area and your property.

Add up all the costs of selling the property. If you are using the services of a real estate broker, the broker will provide an estimate of closing costs. If you are selling the property on your own, call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

Determine the amount owed against the property. This will be the total of all loans against the property.

Do the calculations. Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number.

Contact the lender or lenders. Talk to someone in the customer service department and tell them the situation. They may direct you to a specific department. Talk to a supervisor or manager if possible; this person will have more authority.

Ask the lender what its procedures are for a short sale. Some lenders are willing to work with you by reducing the amount owed or making other arrangements. Others will look to the agents involved (if any) or anyone who's making money off the transaction to see if they concessions to make the transaction happen. Still other lenders will tell you know the dept is your responsibility, one way or another.

Sell the property. Select a real estate broker to assistant in marketing your home.

Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.

Remember that the amount on your monthly loan statement does not include interest. Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you'll need to include this interest in the total payoff amount.

If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or collection. The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income. Check with your accountant.

• Banks may consider a short sale for various reasons.
• A home in any location, size, style and condition may be considered.

• The property must be in distress and have a sales offer in writing.
• Discuss the potential short sale option with the homeowner.
• The homeowner must sign an authorization to release form.
• You must have a signed sales contract for an amount less than what will cover all of the sellers' costs.
• Contact the Loss Mitigation department at the bank.

• Include a cover letter explaining why the offer is less than full price, the sales contract, justifying comps for the area and pictures, if you have them.
• A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc. are paid).
• A hardship letter from the homeowner that mentions the dreaded word... bankruptcy.
• Estimate a cost of repairs using retail repair prices that the normal homeowner would pay for these items.

• Keep in mind that the agreed upon price is payment in full. However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a deficiency judgment.
• If granted, this judgment will affect the homeowners and their credit report just as any other judgment. You must get the bank to agree to accept payment in full without pursuit of any deficiency judgment.
• In addition, you need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a 1099.
• Homeowners should speak with their accountant for advice. Since homeowners have been in such duress and probably haven't made much income, a 1099 may not adversely affect them.

• Since Fannie Mae and Freddie Mac have additional programs to assist sub prime borrowers, many lenders are more willing to offer loan modification options. This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the home owner.
• Also, there may an option to utilize a repayment plan that requires home owners to increase their monthly payments until the loan is current. Seek a real estate company broker and consultant who specializes in short sales. It may be possible to refinance an adjustable rate loan with a Federal Housing Authority (FHA) or Conventional Fixed Loan. Note that lenders will not postpone a foreclosure just because a property is listed, although they may delay the process, if you have a reasonable offer in the works.
• The ideal candidate for a short sale is still making loan payments and has a credit rating worth preserving. Otherwise, it may not be worth going through the complicated process.

• There are a variety of reasons a bank will reject a short sale - from too low a price to too many files on the loss mitigator's desk. You can look for another buyer or even try resubmitting the same contract.
• A short sale might be rejected if the loan is less than a year old. In this case, the loan servicer that bought the loan may require the original lender to buy it back.

• Many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation as a condition to a short sale. In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due.
• According to many professionals, it's important to understand this difference if you work in a non-recourse state. In this instance, the lender cannot pursue a deficiency judgment against a seller for any deficiencies after a property is foreclosed. Because of this distinction, sellers who are already in default on a mortgage and do not have the resources to pay off a separate promissory note after a short sale might be better off letting the lender foreclose. If you are working in a state in which mortgage loans are non-recourse, be sure and alert the seller of this distinction.

• See the advice of a tax expert, but it is possible that the seller must count any amount forgiven by the lender as income and pay taxes on that income, even if no actual money was received. The IRS requires lenders to submit a Form 1099 stating the forgiven amount. Sellers who meet the Internal Revenue Service definition of insolvency (either in bankruptcy or with debts exceeding assets) will not have to pay taxes on the forgiven amount.
• The U.S. House of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
• Ask realtor® regarding the NATIONAL ASSOCIATION OF REALTORS® information on this bill.