Who Qualifies for a Short Sale?

What is a Short Sale?

A short sale happens when the lender accepts less than the total amount due on the mortgage. If your mortgage is $180,000, but your homes current market value is only $150,000, you are $30,000 short, plus costs to close the sale recording fees, title and escrow charges and real estate commissions. Sometimes, but not always a lender will agree to a short sale by letting a buyer purchase the home for less than the mortgage balance and possibly forgiving the debt of the original purchaser. This process would happen before any foreclosure actions by the lender.

Here are simplified steps of a short sale:

Seller (current home owner) enters into an agreement with a real estate agent to sell the property as a short sale subject to third-party approval (current lender).

The real estate agent finds a ready willing and able buyer for the property who is willing to pay current market value for the home which is less than the amount of the current mortgage.

Seller (current home owner) accepts the offer.

Seller's lender accepts the buyer's purchase offer.

Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.

Qualifications for a Short Sale

Consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.

The Home's Market Value Has Dropped. Accurate Competitive Market Comparables of sold properties must substantiate the home is worth less than the unpaid balance due the lender. I will provide this market analysis for free.

There is a high potential for a Mortgage Default. It used to be lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are willing to work with the short sale process before foreclosure is inevitable.

The Seller Has a true hardship. The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

The Seller Has No Assets. The lender will want to see a complete financial statement from the seller including tax returns, income verification, bank statements, and monthly expenses. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.

For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Most common Hardships are: Unemployment; Divorce; Medical emergency; Debilitating illness; Bankruptcy; Death of a spouse

Short Sale Consequences

For a short sale to take place there must be a ready willing and able buyer who makes an offer to purchase. No offer received no short sale. Even if you meet all the other criteria, it is possible no one will buy the property. Additionally the lender has to accept the buyer's offer. If the lender rejects the buyers offer, a short sale will not take place.

Tax Consequences . If the lender agrees to the short sale, the lender may issue you a 1099 for the shorted difference. Many situations are exempt from debt forgiveness and it would be important to consult with a tax account or attorney.

Blemished Credit Report. A short sale will show up on your credit report. It's a pre-foreclosure that has been redeemed. Short sales affect credit ratings negatively. Always seek legal counsel before attempting to pursue a short sale.

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