Home Selling in San Jose>Question Details

Schultz13, Home Owner in San Jose, CA

I keep hearing about Short Sales. What are they?

Asked by Schultz13, San Jose, CA Fri Jan 27, 2012

Please don't hate me. I just want to understand.

Help the community by answering this question:


A short sale is the sale of real estate (property) where the amount of the sale is less than the amount owed by the borrower to their lender. This is an alternative to foreclosure.

Most lenders will require to be considered for a short sale the borrower to show a type of hardship. Examples of a hardship loss of income, divorce, unemployment, medical illness, etc

Some lenders now will consider you for a short sale if you are not in default; if you can prove you can no longer pay the loan and will soon fall in default.
Web Reference: http://www.SLeonRealtor.com
0 votes Thank Flag Link Fri Jan 27, 2012
I would say that Michelles Answer is probably the best one for someone who doesn't understand what a short sale is.
0 votes Thank Flag Link Fri Jan 27, 2012
What is the difference between REO, Short Sales and Regular Sales?

An REO (bank owned property) is property that has been foreclosed on by its lender. The title has been transferred to the foreclosing entity - the lender, which is normally a bank. Presently, banks foreclose on a property because either the homeowners can no longer maintain monthly mortgage payments or because the homeowners simply walked away from the property because it is now worth less than what is owed (i.e. borrower owes $500,000 on a property that is now only worth $300,000 in the market). Aside from equity loss, banks spend a substantial amount of money to foreclose on a property and maintain it until it is sold. Hence it is in the best interest of the bank to “unload” or sell the REO as quickly as possible to avoid further losses. In a down market, banks have to sell low. Therefore, REO pricing is very aggressive and are normally priced at the lower end of a price range. An REO can close within 15 to 30 days. The disadvantage of an REO is the property will have deferred maintenance issues and most would be in poor to fair condition, although most bank owned properties today are being rehabilitated by the banks to maintain the integrity of the neighborhood. There is Competition from other buyers for REO’s and it can sometimes be fierce.

A Short Sale is property that has NOT been foreclosed by the bank or lender; and, the same conditions exist where the homeowner may be “upside down” (what is owed is larger than what it’s worth) on the property or the homeowner can no longer afford to make monthly payments). To avoid foreclosure, the homeowner can elect for a short sale. A short sale or “short pay” happens when the bank or lender agrees to sell the property at an amount less than what is owed (debt is $500,000 but market value is now $300,000). The homeowner is forgiven the remaining debt (in California). In this case it is the bank that has final decision on the sale (with the concurrence of the homeowners). Banks allow short sale when it determines it can minimize losses without having to foreclose. Pricing can be at market or a little below. A short sale can take a minimum of 2 months to 12 months to close, if at all. However, more lenders are inclined to do a short sale today. Condition of short sale properties would be very much like REO’s – deferred maintenance issues and most would be in poor to fair condition. There is competition from other buyers especially if the property is in good condition or in a good school location; but, mostly not.

A regular sale is property that is being re-sold by its present homeowner. Because real estate markets are very much affected by REO’s and Short Sales, regular sales have to compete with lower priced REO’s and Short Sales. Regular Sale pricing is now more aggressive and competitive. However, pricing is still at the median or higher price range, due to homeowner pride. The advantage of a regular sale is it can close fast, the property is normally in good shape (REO’s and Short Sales are sometimes vandalized or have deferred maintenance issues); and, there is less competition from other buyers.

For more advice on what is an REO, Short Sale and Regular Sale call (408) 316-0793 or email rpablaza@comcast.net
Ricardo Ablaza
DRE # 01266541
First Pacific Real Estate
Cell: (408) 316-0793
Email: rpablaza@comcast.net
Website: http://www.buyorsellhomesinthebayareaca.com
0 votes Thank Flag Link Fri Jan 27, 2012
Short Sale simply means selling your home for less than what you owe. In order for you to successfully complete the transaction, your lender has to agree to it. Check out our website for a short video regarding Short Sales, http://www.lorenzorealtors.com/ap.aspx?p=8887&page=Short…

Allan Lorenzo
Broker Associate
Intero Real Estate Services
DRE# 01297161
0 votes Thank Flag Link Fri Jan 27, 2012
Thank you Schultz13:

As the others have pointed out, a short sale is the sale of a home, where the Fair Market Value of the home is not high enough to provide all of the proceeds to pay off all of the mortgages, other liens and the costs of the sale.

The actual process is actually very long and complex. The lender(s) must be persuaded to accept less than the amount that they are owed when the home is sold. This is often a rather long and complex process.

If all of the lenders cannot be persuaded to accept less than the amount that they are owed, the short sale fails and the house is foreclosed in most cases.

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com

0 votes Thank Flag Link Fri Jan 27, 2012
A short sale is also referred to as a short payoff. Simply put, the proceeds from the sale minus transactional fees will not be enough to pay off any of the outstanding mortgages, or liens. If you would like further clarification, go to my website at http://www.thynguyenhomes.com and visit my distressed property links. I have completed dozens of short sales with numerous lenders.
0 votes Thank Flag Link Fri Jan 27, 2012
There are two types of short sales and it helps to remember that "short" refers to the amount the home is financially short when comparing its loan balance to current market value.

1) The property is "underwater" meaning the homeowner owes more than the current market value of the home; such as he bought for $600K with a loan of $500K and now it's only worth $400K. When a new buyer offers to purchase the home, the lender(s) must agree to write off (forgive) the difference (as if $100K in the above scenario).

2) The homeowner can sell the home for the loan value(s) but is "short" the funds to cover the expenses of selling, such as commission, property taxes, transfer fees, etc. If the new offer only covers enough to pay off the loan balances, the seller must get the lenders to agree to pay for the costs of selling, so it is still "short" enough money to complete the sale.

I hope this helps you. Remember no question is stupid.
0 votes Thank Flag Link Fri Jan 27, 2012
Their is no short answer to your question other than the seller is attempting to sell the property for less than they owe the bank. Short Sales are very complex so I've created a website FAQ that covers the high level answers. Remember, each short sale will be different and present different challenges.


I hope this helps and if you have any questions feel free to contact me.

George Nowicki REALTOR®
Cell: 408.892.3379
DRE# 01363797
Email: George@Nowicki.net
Website: http://www.GeorgeNowicki.com
Facebook: http://www.facebook.com/GeorgeNowicki.Realtor
Twitter: twitter.com/GeorgeNowicki
BLOG: georgenowickisrealestatenews.blogspot.com

Realty World Platinum
3333 Bowers Ave #130
Santa Clara. CA 95054
0 votes Thank Flag Link Fri Jan 27, 2012
Hello Schultz13,

It is great that you wish to have more knowledge, so I don't seeing anyone hating you for that. In a nutshell, a short sale is when a lender agrees to accept a payoff that is less than the lien amount, combined with the costs associated with the sale.

The homeowner has some sort of distress, and the bank agrees to take a loss. This loss is less than the costs associated with the foreclosure process, so there is an incentive to work with the homeowner to short sell their home.

If you would like to speak further in regards to short sales, or have any other questions, please don't hesitate to get in touch with me.
Web Reference: http://www.RyanNunnally.com
0 votes Thank Flag Link Fri Jan 27, 2012
Short sales should not be called short. The process is a long and difficult one. The should be called long sales. The are called short because the home owner comes up short on the money they owe to the bank. The home owner can not pay the mortgage and the house is worth less then what they owe so the home owner is trying to make a deal with the bank to accept less money for the house then what they owe.
0 votes Thank Flag Link Fri Jan 27, 2012
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