whats a short sale?

Asked by sandy, San Diego, CA Wed Aug 31, 2011

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Joanne Berna…, Agent, Northfield, NJ
Sat Sep 3, 2011
Max Folker,
Your answer is both unprofessional and politically incorrect. This is the type of comments that give realtors a bad name. Please reserve this space for intelligent, professional and business like answers and leave the middle school humor home where it belongs!
2 votes
Maria Cipoll…, Agent, Coral Springs, FL
Mon Oct 15, 2012
If a homeowner owes more on their property than it is currently worth, is a good candidate for a short sale process. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify.

Best of Luck,

Maria Cipollone

1 vote
Susan Palmiro, Agent, Bronx, NY
Thu Dec 22, 2011
A short sale in real estate occurs when the proceeds from selling the property will fall 'short' of the balance of all liens owed against the property and the property owner cannot afford to repay the liens' full amount. The bank therefore agrees to release the homeowner's lien on the real estate and accept less than the amount owed on the debt. However, any balance that is owed to the bank is known as a deficiency. Short sales don't necessarily release borrowers from their obligations to repay the deficiency, unless specifically agreed to between the parties.

A short sale is often preferred to foreclosure because it reduces additional costs to the creditor (bank usually) and borrower (homeowner); however a short sale and a foreclosure will many result in a negative credit rating against the property owner
1 vote
Jason Richar…, Agent, Encinitas, CA
Thu Sep 15, 2011
Now that you have all the answers, here is the follow up advice,

-Prepare to wait as long as 9 months to a year and to also have it fall through.
-Short sales usually have a 40% to 60% success rate at your offer price.
-If you have time constraints, you might want to consider bank owned or traditional sales.
-Of the 15,000 homes on the market in San Diego County, 6,300 are short sales.
-Make sure your financing is short sale compatible.
-Be aware of interest rate exposure (interest rates going up while you wait)
-Prepare yourself for as-is propertys (you assume all repairs)

Short sales can be good deals (average 5 to 8% below market) and worth your time, just know what you are getting into.

Feel free to call with questions


Web Reference:  http://www.noviproperty.com
1 vote
Joshua Sloan, , San Diego, CA
Thu Jan 5, 2012
Great answers! In short, it means that what is owed on the mortgage loan(s) is more than the value of the home.

For example, your loan amount due is $500,000, but the house is only worth $400,000. If you were to try and sell the home and you couldn't come up with the difference, then you could contact the bank and ask them to sell it short of what you owe them.
0 votes
Heather Paul, Agent, Santa Monica, CA
Mon Dec 26, 2011
It is when your home is currently worth less than it is owed on the mortgage note. This means you will need the bank or lender's approval to finalize the sale. Buying a short sale can be a long process, hire your own buyers agent to assist you with your home buying and negotiations.
0 votes
Vickie Newman, , Denver, CO
Thu Dec 22, 2011
Saw you got some answers on what a short sale is- I thought you might also find my tips to Avoid a Bank Counter-Offer on a Short Sale helpful:

In every short sale, the big unknown is “What did the BPO come in at?”. Unfortunately, most banks don’t share their BPO or Appraisal value, but will simply tell you that the “BPO came in higher and we need to counter” or the “BPO was in the range”. BPOs are usually completed within the first 3-4 weeks upon submission of a complete short sale package. How can you increase your odds that the bank won’t counter or deny your short sale:
• Use realistic comps, in the neighborhood if possible, that truly represent the value of the property. Supplying unreasonable, or not the best, comps and accepting an offer based on these is not promising.
• If accepting a “low” offer, be prepared for a counter. Can and will the buyer come up in price if possible?
• Provide an Estimate of Repairs with short sale package. REMN/SOS provides listing agents with a Repair Cost Estimate. This is an optional form to complete, but it gives the RE Agent the opportunity to identify areas of concern with the property upfront.
• Take pictures. If the property has areas of deferred maintenance, take pictures of these to provide with the short sale package. The BPO agent may not go inside or may overlook these areas. Like the old cliché says, “a picture tells a thousand words”.
• Provide a copy of the home inspection if one has been completed.
• A copy of a current appraisal. Not always feasible because of the cost, but if the buyer uses REMN for their financing, the appraisal on the property for their mortgage can be used in negotiating with the short sale lender (and if the short sale gets denied, the buyer is credited back the appraisal fee on the next house they buy!).

Of course, there are times when the bank’s BPO comes in way too high and unrealistic. The only recourse in this situation is an appraisal. Hopefully, following some of the above will increase your chances of a quicker approval with less hassles.

Vickie Newman
Real Estate Mortgage Network
0 votes
Penny Donald, , Nokomis, FL
Thu Dec 22, 2011
Typically the owner of the home has recieved a notice of default on their home from the bank because they have missed a payment. The bank files a lis pendens with the courts that the owner is now on notice. The owner has the choice to pay the missed payments and fees. Most people nowadays stop paying becuase they are upside down, they owe more than the house is worth so what they do is list their home with a realtor for less than what they owe the bank, therefore coming up "short". The bank has to then agree to let the owner sell it for the reduced price.
0 votes
Dan Contino, Agent, Mystic, CT
Thu Dec 22, 2011
You have some great advice here, and I would like to add that before attempting a short sale, please do understand many mortgage lenders today are willing to work with homeowners who fall behind on payments, offering them opportunities to repay the outstanding amount in a varient of wasy - a revised payment plan, loan modification, refinancing, etc. It is oftern less expensive for a lender to help you keep you home than to go through foreclosure
Web Reference:  http://www.cthomeadvice.com
0 votes
Mario Roberts, Agent, San Diego, CA
Thu Dec 15, 2011
It's when a home owner for financial or other reasons needs to sell and mortgage on the property is higher than the current market value.

When this happens it is a two step process. When you submit the offer it has to be first approved by the home owner and then by the bank or banks if there is a 2nd mortgage on the property.

the best thing to do if your house hunting and found a property that is a short sell is put an offer in and keep house hunting! It takes the bank/s typically a long time to respond and they may just sit on it and wait for more offers to come in.

If you look a multiple homes and put in multiple offers then something will bite.

I hope that helps!

Mario Roberts
Realtor / RE Investment Consultant

"Always happy to work with your referrals"

Gold Coast Properties
4443 30th St. #200
San Diego, CA 92116

C: 619-500-6006
E: Your.RE.Guru@gmail.com
W: http://www.MarioRobertsRealty.com
0 votes
Marlene Gold…, Agent, Jenkintown, PA
Wed Dec 14, 2011
A "short sale" is one in which the seller of the property owes more on the mortgage (and related selling expenses) than he or she can clear from the net proceeds of the sale. The lender who holds the mortgage on the property agrees to take less than they are owed on the property in order to allow the sale to go through. The seller realizes zero dollars at settlement and the debt to the lender is considered paid.
The incentive for a lender to do this is that in most instances, it will cost them less than going through the process of foreclosing on the property.
They will require that the seller of such a property PROVE that they cannot repay the loan and has true hardship. It is not just a "gimme".
If you have further questions - feel free to contact me.
0 votes
Pat Brosnan, Agent, Mclean, VA
Wed Dec 14, 2011
When the value of the property is less than what is owed on the bank note.
0 votes
Al Colhoun, Agent, Tahoe City, CA
Wed Dec 14, 2011
The briefest answer is that the owner/seller is attempting to sell the property for less than is owed against the property.
0 votes
John Harris, , 64151
Wed Dec 14, 2011
The short answer is that when the net amount your house sells for is less than what you owe on it. I believe that short sales represent the best value on the market today for a buyer.
0 votes
Amanda Stain…, Agent, Cumming, GA
Wed Dec 14, 2011
If you want to sell your house but it’s worth less than the amount remaining on the mortgage, a short sale may allow you to sell your house and settle your mortgage debt. By completing a short sale rather than allowing your house to go through foreclosure, you avoid eviction and your house will not be sold at a public sale or auction. Plus, depending on your circumstances, you could qualify for financial assistance to help with relocation costs. It is best to contact your lender when considering a short sale to discuss this along with other options including a loan modification or a deed in lieu of foreclosure.
0 votes
Joanne Berna…, Agent, Northfield, NJ
Fri Dec 9, 2011
A Short Sale occurs when a buyer sells a home for less than he/she owes on the mortgage. This is common in todays market when the home was purchased in the height of the real estate boom a few years ago. The home prices and fair market value have fallen significantly leaving the seller"under water". For a more thorough answer please see my blog, "Understanding the Short Sale Process".

0 votes
Greg Von Her…, Agent, La Jolla, CA
Mon Sep 26, 2011
The term short sale refers to a short (or deficient) payoff of a mortgage held on a property. The lender is basically agreeing to take a short payoff on the amount owed in exchange for ownership of the property (vs. a traditional sale that would provide the lender a full payoff).
0 votes
Cindy Davis, Agent, San Diego, CA
Fri Sep 23, 2011
A short sale is one where the seller owes more on a property than it is currently worth. In order to sell the home at today's lower prices, the seller must go to their lender and complete what's known as a 'hardship packet.' If approved, the lender agrees to take a loss on what's owed. If the lender does not agree to a short sale, and sellers default on their mortgage, it will ultimately result in a foreclosure.

The advantage for a seller to do a short sale is that their credit won't be as severely impacted compared with a foreclosure. The seller has a stronger chance to buy a new home within a couple of years if they go with a short sale.
0 votes
Brent Delham…, Agent, San Diego, CA
Mon Sep 19, 2011
Short Sales : Buying SMART!

As you may or may have not heard buying short sales can be a tricky process and that is the honest truth! Just like all distressed properties Short sales have an overwhelming amount of urban legends around them and it’s important a buyer is able to get this sorted through and find the truths and the strains they can help you officially by a property and help you arrive at your Buying destination of choice safely. Our market savy Agents at SmartSanDiegoHomeFinder.com can help dispel the myths and most importantly help you navigate a short sale inSan Diego, foreclosure properties, bank owned properties or what ever type of property you are thinking about buying either foreign investment or your family.

To briefly talk about some of these myths we always bring up a major item to buyers thinking about buying a short sale home first and foremost : you get prepared to wait quite some time to buy a home. No waiting quite some time means different things to different people and honestly everyone’s rights because short sales are never a definite period of time to successfully purchase. Over time we have seen short sales of all from taking anywhere from nine to twelve months to purchase where nowadays as banks have become more savvy the time period to purchase sale home has decreased two and the average of three to four months upon entering in your initial offer.

Talking about timelines it’s important to point out that there are two different types of short sales one that has been approved by the bank at a specific purchase price and the other which is a short sale that has recently gone on the market and their agents/sellers have not yet been in communication with the bank about doing a short sale. Let’s talk about the latter first: a short sale process typically starts out with homeowners understanding their property is under water or valued at less than market value with their loans being more than market value and they are in some type of distress whether it be financial, health, marital or a variety of other reasons creating the distress. At this point in time they will contact a real estate agents, hopefully one that has done short sales before, and upon listing their home for sale with the agent will go on the market at typically a listing price less than its true market value. Upon getting offers on the property, typically multiple offers, the agent will submit the offer of choice and in and for mission package including why the homeowners are under some sort of duress. This is where the bulk of the time can occur during a short sale process where the sellers/agent are awaiting the bank’s reply to the offer they submitted and their letter and package of duress. The bank is under no obligation to approve this short sale and in many events does not. If the bank does approve the short sale they likely will want a higher price than the offer that was submitted. You can begin to see how weeks and weeks if not months and months will go by while the buyer is hopefully awaiting a reply to their offer. This is where most buyers begin to have difficulty as they’ve become emotionally involved with the offer and the home, again this is where the heart ache begins. This is why we typically steer our buyers away from short sales that have just been listed on the market as they do not typically work out well, not to say that there are not success too.

Talking about successes, let’s get back to short sales that are already up proved by the bank at a specific purchase point. When the property has already been approved by the bank at a specific purchase price it will help the buyer, seller, and agents perform all of the tasks necessary to get the bank to approve a purchase offer in a much quicker time line. It is these properties that have the best likelihood of success with buyers as the response time by banks are cut down dramatically.
0 votes
Rachel LaMar,…, Agent, Carlsbad, CA
Fri Sep 16, 2011
Hi Sandy,

Wow, there are a lot of great answers here. Rather than repeat anything, I will just mention a few things.

Short sales are changing with some lenders. For example, if a seller has a first loan with Bank of America they are starting to preapprove short sales. They actually send out an appraiser and tell you what the home should sell for. Sellers can also try and qualify for HAFA (Home Affordable Foreclosure Alternatives Program), which would give them some money to use toward moving expenses - up to $3000. Preapproved short sales may take less time than those that are not, and I have seen some strides on behalf of B of A (I know some will beat me up for this, but it is true). Hopefully with time we will see this, but of course be prepared for a long wait.

Another thing to consider is that if you are not the first buyer to come along (i.e. they had already started the process with a previous buyer), the wait time may be quicker, depending on whether a negotiator was already assigned. Your agent can look into this.

Finally, it is important to find an agent who is well versed with short sales and distressed properties, so that s/he can stay on top of things if you do decide to purchase a short sale.

Best of luck,

0 votes
Jenny Talasa…, Agent, San Diego, CA
Thu Sep 15, 2011
WOW< SO MANY GREAT ANSWERS! Great job Everyone, I love this site! Put simply, a short sale is the sale of a home in which the amount owed to the lender(s) is more than the amount that the home can be sold for. Instead of the home owner having to bring in money to complete the sale, the sale is completed through negotiations with the existing lender(s) and the lender(s) agree to accept less than the full amount owed to satisfy the debt and allow it to be paid off “short.”

Put even more simply, a short sale is a real estate transaction that requires an approval from the lender - period.
It’s not some complicated legal process that requires paying an attorney. As a matter of fact, watch out for anyone trying to collect UPFRONT FEE!!!! NEVER SPEND MONEY!
Now don’t get us wrong. Short sales are most definitely a different animal than a regular real estate transaction because once you stop making your mortgage payments, the clock starts ticking and the hangman starts preparing his noose.
You’ll get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, drops the ball, or simply doesn’t know how to negotiate with banks, you’ll wind up being foreclosed on and believe me, you do not want to go through a foreclosure.
A foreclosure will devastate your credit. Your credit score can be lowered by as much as 300-400 points (or more) and you’ll be hounded day and night by your lender.
Your home will be repossessed by the bank and the bank will sell your home, either at auction, or more likely through a real estate agent, with a large sign out front that says "Bank Foreclosure".

Here’s something important you need to know about short sales, depending on whether the loan on your home is a "purchase money" loan or whether you did a "cash out" refinance after your purchase, you either have a "non recourse" or a "recourse" loan. This makes a BIG difference as to whether or not your lender can go after you to repay your debt, even after your home has been foreclosed on. Always see a CPA or a
A non-recourse loan is…
A loan agreement under which the collateral securing a loan is the ultimate source of repayment, and the lender cannot hold the borrower personally liable in the event of a default. The lender can seize (and sell) the collateral but cannot seize non-pledged asset or property.
A recourse loan is…
A loan agreement under which a borrower gives an undertaking to repay a debt even if the funded asset (acquired with the loan proceeds) cannot be liquidated to cover the loan amount. In case of a default, the lender can seize and sell the funded asset as well as the borrower's un-pledged assets or properties.
That recourse loan sounds scary huh? They can be. The great news is, we can help you either way but the steps are different. Now, if you want to see really scary, just ask the next real estate agent you meet claiming to be a short sale expert if he or she can explain the difference between the two.
So, we applaud you now for doing your research and not simply trusting this process to the first of many typical real estate agents who are likely to come along promising their expertise!
While we’re at it, you should also be wary of the many unscrupulous companies operating now that actually encourage you to go through foreclosure so you can live in your home a few more months without paying your mortgage. These companies prey on people who are vulnerable and unaware of the foreclosure and mortgage laws.
They even charge you a hefty fee for the privilege of getting foreclosed on! This is financial suicide, and it is totally unnecessary because...
Your lender does not want to foreclose on your home.
It’s true. They would much rather have you stay in your home and continue making your payments, or have you sell it and get it off their books, even if it requires them taking a financial loss. Remember, banks are in the lending business, not the real estate business, which brings us to our next point:

We have worked with them all and they all work the same – if you submit a sensible offer and a clean package and have the systems and resources in place to consistently and continuously follow up on the file, it will get accepted and your home will be sold “short.” You’ll pay nothing. You’ll owe nothing. You’ll avoid having a foreclosure on your credit report and you’ll survive to fight another day!"
This is a copy of a page of my book for your review. Please share with anyone you care about!
Web Reference:  http://www.usadebetxpert.com
0 votes
Alex Lopez, , South Florida, FL
Thu Sep 15, 2011
You've got some good answers here, basically all it means is that you can sell your home for less than what you owe. A short sale can be used to avoid foreclosure.

The HAFA short sale program helps homeowners in distress by speeding up the short sale process and offering incentives, including $3,000 in moving assistance. You can learn about the HAFA short sale program here: http://www.shortsalespeople.com/portfolio_2/how-the-hafa-sho…

Thank you !
0 votes
Melissa Zava…, Agent, Escondido, CA
Mon Sep 5, 2011
A short sale is the sale of a home where the current owner owes more to the bank than the home is worth. This type of purchase requires the homebuyer to wait while the seller's lender approves the sale--since their lender will be accepting less than full value in order to pay off the mortgage.
0 votes
Keith Bennett, Agent, Columbus, GA
Sat Sep 3, 2011
A short sale is when the lender,(the person or company that owns the loan) is taking less than the amount owed in the sale of the home. If you are, or thinking of getting into such a transaction, make sure you consult a attorney about it. I am a agent and would not start to give legal advice on such a serious undertaking. Good Luck, I hope this helps.
0 votes
Lilo Clacher, Agent, Cape Coral, FL
Sat Sep 3, 2011
What is a short sale? A short sale is an agreement that your real estate agent negotiates between you and your bank to sell your home for less than you still owe. The bank absorbs the loss so that the seller doesn’t have to repay the balance of the mortgage.

• Why would you do this? Your home is now worth less than you owe, which is called being underwater, and you have a financial hardship. There are a number of things that could put you in financial hardship and have you considering a short sale — such as unemployment, job transfer, illness, underemployment or divorce.

• How does it work? A real estate agent lists your home at its current market value. Then a buyer places an offer that is usually much less than the amount required to pay off the loan. The seller or agent (if the seller has given written permission for the agent to do so) takes the short sale purchase agreement to the bank holding the mortgage in hopes that they’ll accept it.

• What do you need? Basic guidelines usually include a hardship letter about why you need a short sale, bank statements for the last three months, two years of tax returns and permission for your real estate agent to negotiate short sale terms with your bank.
• How should you proceed? Most accountants agree that a short sale is better for your credit score than a foreclosure. Talk to your agent and have him or her refer you to an accountant who can evaluate your situation and help you take the steps necessary to secure a good financial future.

There’s a lot more to short sales than I’ve outlined here, but this gives you a starting point.

If you’re finding it difficult to meet your monthly mortgage payments and still owe more than your home is worth, then you might want to consider a short sale for your Cape Coral/Fort Myers real estate. It can decrease your debt and release you from that monthly financial burden. Call me at 239-699-0142 or email me at Liloc@att.net for more information.
Web Reference:  http://www.LiloRealtor.com
0 votes
Joanne Berna…, Agent, Northfield, NJ
Sat Sep 3, 2011
A short sale is the sale of a property for an amount less than what the owner owes on his mortgage. The bank must approve the sale of the property for the lower price. You must submit a request for the short sale and documentation to the bank to prove you can no longer afford to carry the costs of the home. Banks usually prefer short sales to foreclosures. It is important that you list your home with an agent who is experienced in the short sale process. It can mean all the difference in the world when you find your buyer and have to deal with the bank(s) holding the mortgages(s).
0 votes
Mr Credit, Other Pro, San Diego, CA
Wed Aug 31, 2011
Simply put, it's a home that is for Sale by an Owner that is "up-side-down" on the mortgage. Meaning, they owe more on the house than what it will sell for. They are hoping to get the Bank to agree to take a loss so they don't have to go to Foreclosure. The banks will usually do this because it will put more money in their pockets than going through the long and expensive foreclosure process. BUT, the Short Sale process in itself is very long, stressful and time consuming if You're the buyer. Just beware :)

Mr Credit
ESPN Radio San Diego
0 votes
Rich Homer, Agent, NAPLES, FL
Wed Aug 31, 2011
A word of caution on short sales, Three signatures (bank, seller, buyer) are required for short sales. Bank has no obligation to accept a contract between a buyer and the seller. We advise our clients to stay with bank-owned real estate (REO). Short sales usually go for way more than they list at anyway. We have witnessed banks reject multiple offers over list price and re-list at a higher amount. Meanwhile, your earnest money deposit is at risk and if you get tired of watching properties pass you by and pull-out..your deposit is gone. Stay with REO's, post-foreclosure, not pre-foreclosure.
0 votes
Abu Musa, Agent, New York, NY
Wed Aug 31, 2011
In short definition of short sale is market value of the property is less then the mortgage amount or owe by borrower.
0 votes
Jenny Talasa…, Agent, San Diego, CA
Wed Aug 31, 2011
Hi Sandy,
How are you? I have written a book on short sales. PLEASE GO TO MY SITE! This is my favorite question. Once you read my book you will know more then a lot of sales people out there not practicing as a Realtor. make sure you talk to a CPA, attorney, loan officer-if needed, and a financial advisor. Soak up all the info, ASK a LOT of questions and DO not be SCARED! You are entering a market where opportunity is amazing and BANGING on all Our doors! Go to my site! You will be happy, I promise you! I would love an opportunity to speak and/or meet you!
Web Reference:  http://www.usadebtexpert.com
0 votes
Jason Richar…, Agent, Encinitas, CA
Wed Aug 31, 2011
I heard a statistic that the average "savings" on a short sale over a traditional sale is around 5%. While that can be enticing, there are a lot of other risks associated with short sales that offset the savings. These can be hidden property issues, opportunity costs of playing the waiting game and what is looking more and more like significant interest rate exposure. Most of my clients end up asking me to only show them properties that are not short sales over time. Hope this helps.
Web Reference:  http://www.noviproperty.com
0 votes
Maureen Bye…, Agent, Oceanside, CA
Wed Aug 31, 2011
Hi Sandy, I've been working on short sales for decades before they became a household name. Shorts are a great way for you to buy a home as they are priced low like foreclosures or some traditional sale to compete. The seller is 'underwater' on which simply means that he/she owes more on his mortgage than his/her home is worth in todays market place and the sellers short sale bank or more than one bank has indicated that they are willing to cooperate with a low price subject to the sellers bank approval which takes some time but it IS well worth the wait as there are many benefits.
Web Reference:  http://www.coastal.biz
0 votes
Anna M Brocco, Agent, Williston Park, NY
Wed Aug 31, 2011
A short sale occurs when an owner has proven hardship to the lender and can sell for less then owed; the seller can accept whatever offer he/she wishes, but the lender decides to accept, reject or possibly counteroffer; short sales are by no means fast sales, therefore much patience is needed....
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Aug 31, 2011
Hello a third time Sandy;

You decided to take a Crash Course in Real Estate today!

As I told you, as a novice I recommend that you go for an REO as opposed to a Short Sale:
The reason is the time element; It will take 3-6 months to do a SS and it could take 6-9 months!
With a good Realtor by your side, you could be in an REO in 90 days and I don't think you would see that much difference in price.

Good luck and may God bless
0 votes
Diane Conaway, Agent, Escondido, CA
Wed Aug 31, 2011
Hi Sandy,
A short sale occurs when a seller sells their home for less than is owed to their lender with the lender's permission. It is an attempt to sell the home prior to it becoming a foreclosure. They have been prevalent in our market for the last 2 years or so. Depending on the lender, it can take 30 days to 6 months or more to get an approval from the short sale lender. They are getting better and more timely, but they take longer than a normal sale. If time is on your side, it can be a good deal. Are you a patient person?

Diane Conaway, RE/MAX United, (760) 749-2888
0 votes
Valerie Cerr…, Agent, Ardsley, NY
Wed Aug 31, 2011
A short sale is when the selling price is negotiated between seller, buyer and the bank, and the bank agrees to take less than the actual mortgage pay-off amount.

Typically, a buyer has to expect a protracted time to negotiate and close a short sale, since the permission is needed from the lender to proceed. That said, they can work and result in good value for the buyer, and save the seller from potential foreclosure.
0 votes
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