Q: What is a short sale?

A: A short sale is a form of loss mitigation wherein a homeowner sells his home for less than the mortgage owed on it. For a short sale to take place, the lender has to agree to take the loss on the buyer’s part and accept the proceeds of the sale as full payment.

Q: Why would lenders agree to a short sale?

A: On a bank’s portfolio, foreclosed property is considered a non-performing asset; that is, it doesn’t bring in any revenue. That is why most lenders would rather own liquid cash than real estate. Short sales allow them to avoid the costs of foreclosure while minimizing loss.

Q: How is short sale price determined?

A: The pricing system varies from one lender to the other, so the best thing to do is call up your bank. Generally, the price is based on the home’s current value based on recent sales on similar properties. The bank may also deduct penalties, processing, and other costs.

Q: Are short sales really a good deal?

A: Not every short sale is worth your money, but if you know how to choose, your money can go a long way. The best thing to do is to do your research, study every prospect thoroughly, and work with your agent to pick out the most promising deals.

Q: Who pays commissions in a short sale?

A: In a conventional sale, commissions are usually deducted from the seller’s funds and put in an escrow fund for the agent. Since a short sale seller doesn’t have funds in escrow, the commissions are taken off the proceeds, which means it’s technically the lender who pays.

Q: How long does a short sale take?

A: Each homeowner’s case is different, so the time frame can be anywhere from a few weeks to more than a year. On average, a short sale home spends three months on the market, excluding the processing and negotiations between the buyer and the seller.

Q: What if there are liens on the property?

A: Any liens on the home would mean that the owner isn’t financially capable of clearing them. The lender may agree to pay the costs, or the lien holders may agree to reduce them. In any case, liens will make the process significantly longer and more complicated.

Q: Can investors buy short sales?

A: Yes, but the rules may be different from those that apply to residential buyers. There are sellers who consider only residential buyers, and others who prefer seasoned investors. Requirements may also vary if you’re considering government assistance or financing.

Q: How long will it take to get approved?

A: This depends on various factors, the most important being the bank policies and how many loans there are on the home. Your offer has to go through the seller, his lender, and any other party that holds an interest on the property, so it’s really on a case-to-case basis.

Q: Do I get ownership when I buy a short sale?

A: Yes, a short sale will give you full title to the property just like in a conventional sale. However, if there are any liens on the home that aren’t resolved at closing, you may face title issues. That’s why it’s important to look them up before finalizing the deal.


Short Sale FAQs for Sellers

Q: Who are the best candidates for a short sale?

A: Short sales usually work best for people who are already in pre-foreclosure, which usually starts after one misses three payments. However, experts also recommend short sales for people with negative equity, and those who are in hardship but not yet behind.

Q: What does a short sale do for the seller?

A: The primary advantage of a short sale is that it lets you avoid the stress of foreclosure and the burden of a heavy mortgage. Compared to foreclosure and bankruptcy, it’s also less damaging to your credit and easier to recover from afterwards.

Q: Can rental properties be sold in a short sale?

A: Yes, as long as you can present a valid financial hardship to justify the short sale. If you are an investor, there may also be tax implications since mortgage relief is considered a capital gain. A realtor or adviser can give you more information on state-specific rules.

Q: What factors does the lender look at?

A: The bottom line in a short sale is that it must make more sense financially to the lender than a foreclosure. Most banks will look at the borrower’s financial records, the home’s equity, the nature of the hardship, and the number of months the loan has been in default.

Q: Are there any alternatives to a short sale?

A: Short sales are just one of many forms of loss mitigation designed to help troubled homeowners. Before considering a short sale, look into other options such as loan modification, refinancing, or even selling in a conventional sale.

Q: What is a financial hardship?

A: The financial hardship is an important element in your short sale. It refers to any situation that has kept you from staying current, such as job loss or a medical emergency. It must be clearly presented in your hardship letter and backed by proper paperwork.

Q: Who pays property taxes in a short sale?

A: Property taxes work the same way in both conventional and short sales. Basically, you are responsible for the taxes on your home until the day it is turned over to the buyer. You may be able to negotiate with your buyer to share the tax costs.

Q: Can I short sell a home that’s already listed?

A: This is actually a very common practice, especially in areas with slow market times. In fact, some lenders even require a home to be listed in the MLS before approving a short sale, as it proves that the home isn’t selling at the current market price.

Q: Do all short sales work?

A: No, because it’s still up to the lender whether or not a home can be put up for short sale. Even after a purchase agreement has been signed, if the lender does not approve of the terms, the contract simply becomes void and the home stays on the listing.

Q: Are short sales possible on homes with multiple mortgages?

A: Yes, but each mortgage has to be negotiated separately. It is also important to know which of the loans is in default or originated the foreclosure, or if it’s more than one, which one was the first to fall behind.