What is a Short Sale?

Asked by Sara, wisonsin Tue Sep 22, 2009

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Gail Strom’s answer
Gail Strom, Agent, Apple Valley, MN
Thu Jan 2, 2014
It's very basic but the ways they are accomplished vary. They are similar to a standard listing up front but when the contract is agreed between buyer and seller, this is when the real work begins. The seller should work with a seasoned short sale professional to negotiate on their behalf with the lender. If the lender deems the seller is in a hardship situation they may approve the sale and receiving less than the current mortgage balance. It's best to have a discussion specific to your situation with a Realtor, attorney, and even your accountant before moving forward with a short sale because state laws vary and change, you need to know what consequence there may be when you sell your property in a short sale.

Gail Strom
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CJ Barnes, Agent, Las Vegas, NV
Sat Oct 9, 2010
A short sale is when the lender agrees to take less than the seller owes, and the home is worth a lot less than the pruchase price or the amount of the loan on said property, all sellers in this position are to be advised to talk with a CPA and Attorney about what the effects of a short sale will have on their credit and any future purchase of another home as well as money still owed the the lender after the sale, plus IRS consequences. All can be negotiated and more favorable than foreclosure if the homeowner has the right people on their team.
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Sue Straub, Agent, Eden Prairie, MN
Sat Oct 9, 2010
A short sale is where the owner of the property is "short" funds to pay off everything owed on the property. This includes any mortgages that need to be paid off. So the owner of the property asks the mortgage holder (bank/lender) to allow a lesser payoff on their mortgage. That approval of the lesser payoff of the mortgage can takes weeks or months.

And if there is more than 1 mortgage on the property, then usually the 2 banks/mortgage holders fight over the amounts as both want the most they can get. Sometimes this amount is only $1000 but the deal is not approved until all parties/banks/lenders agree to the terms. We have dealt with lenders that are impossible to work with (from no way to contact them to not responding to making ridiculous conditions) to smaller banks that seem to want to get the property sold and get rid of the bad debt.

Another thing about short sales is the banks/lenders will not consider a short sale unless the owner is at least one payment late on their mortgage payments. So in the process, the banks are making the owners ruin their credit score. One late mortgage payment is worth about 50 points and the range is from 350-850. You can see this is a huge hit to the credit number. These owners then cannot turn around and buy another property because their credit scores prevent them from getting another mortgage.

We need the short sale properties to get closed but the lenders/banks are making this process worse for everyone involved. If you are a buyer and have the patience to wait a few months to get your deal approved, then go for it as we all need your deals to get done so we can all move thru this mess.
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Dan & Margo…, Agent, Burnsville, MN
Thu Sep 24, 2009

A short sale simply means the Seller will not have enough money from the sale of the property to pay all costs at closing - including the mortgage(s), fees, and commissions. A Seller can still sell their property for less than their mortgage value and not call it a short sale as long as they stipulate that they will bring money to closing to satify all of their expenses.

However, the most common reference to an advertised "short sale" as you would see it on an MLS listing indicates the Seller has made arrangements with their lender to sell the property for less than the amount owed currently and the lender is willing to allow that to happen. The short sale process can be long and frustrating due to the fact that their are TWO parties on the Seller side which must be satisfied: First - the Seller must accept the offer. Second - the Lender(s) must approve the short sale amount. This is where the offer/purchase process generally slows down. Often a purchase agreement which has been accepted by the Seller doesn't make it to the closing.

Are you planning to purchase a property which is a "short sale" or do you foresee having to sell your own property for less than you owe?

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CJ Barnes, Agent, Las Vegas, NV
Tue Sep 22, 2009
A short sale means the seller is upside down in their loan the value of the property has depreciated below what the loan amount is.
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Debbie Bruns…, , 33569
Tue Sep 22, 2009
Hi Sara,
A short sale is a situation where the seller attempts to sell their home for less than what they owe the lender on the mortgage. The lender must approve an offer from a buyer and the seller normally has to have a hardship such as loss of income. Short sale situations also usually have many offers and the lender will choose the most profitable. The most important thing you need to do is find a Realtor that is very knowledgeable in short sales. Hope this helps.
Good Luck
Debbie Brunson
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Patrick Thies, Agent, Anytown, IL
Tue Sep 22, 2009
A short sale is when the value of the property is less than what the owner owes on it. The owner tries to sell the property for what they can get and then goes to the bank and asks the bank to accept the sale amount and forgive the difference.

In order to do a short sale, the seller must be in a hardship situation and unable to pay their mortgage due to such things as medical bills, loss of job etc. The seller can not have assets that could go towards paying the mortgage due or walk from the sale with any money. The short sale is usually done to avoid a foreclosure. It will affect your credit score, but not as bad as a foreclosure will.
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Teddy Jagess…, , Wellington, FL
Tue Sep 22, 2009
When a lender is willing to allow the sale of a house for less than the mortgage absorbing the loss
Web Reference:  http://mypbchomes.com
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