What Is A Short Sale?

A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for.

SELLER'S PERSPECTIVE
Step One
Verify the value of your property. If you are selling the property through a real estate agent, your agent 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.

Step Two
Add up all the costs of selling the property. If you are using the services of a real estate agent, the agent will provide an estimate of closing costs. If you are selling the property on your own (for sale by owner), call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

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

Step Four
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.

Step Five
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.

Step Six
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 else who's making money off the transaction to see if they are willing to make concessions to make the transaction happen. Still other lenders will tell you that your debt is your responsibility, one way or the other.
Step Seven
Sell the property.

Tips & Warnings

• 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 a 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.
  

BUYER'S PERSPECTIVE
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the Lender will accept your offer, even if the Seller accepts it.

Be aware that the Seller will need to be in default, to have stopped making mortgage payments, before a Lender will consider a short sale. Also, the Seller might have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.

Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the Lender(s). This is important because it will help you to determine how much to offer.

If there are two loans, you will probably deal with the second mortgage lender. The first mortgage Lender's position is protected by the second Lender unless the second Lender does not want to foreclose. For example, if a Seller owes $200,000 to the first Lender and $40,000 to the second Lender, you cannot offer $200,000 because it will wipe out the second lender.

WORDS TO LIVE BY

Remember what the Scriptures say:

“Many are the afflictions of the righteous, but the Lord delivers them out of them all.”
Psalm 34:19

And the words of Peter:

"Beloved, do not think it strange concerning the fiery trial which is trying you, as though something strange were happening to you..." 1 Peter 4:12