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What is a Short Sale?

A Short Sale is when the Investor (investor=organization who is due the money; the bank that your mortgage is through might be the investor or the servicer who services the loan for the investor) and possible lien holders settle for less than what is owned to them because the house is worth less than what is owed.

Requirements 

  • There must be a financial hardship (job loss, death of an income provider, divorce, excessive debt, etc.)

    • Financials get reviewed (bank statements, savings, pay stubs, etc.)

  • Seller must leave the house after closing of a Short Sale

  • Arm's Length Transaction: All parties involved must be completely independent and have no relations causing them to act in their own interest 

  • House must be sold at or above BPO (Broker Price Opinion). This is the bank's appraisal.

  • All person or people who are on the mortgage need to sign (wet signatures). 

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Why do homeowners hand over the keys? 

  • Can't obtain money or create a source of income to sustain paying mortgage payments

  • To prevent damage to their credit and their ability to purchase a house in the future

    • ​Free and clear of debt (approval letter stating release of any lien and loan deficiency)

    • Credit can be damaged up to 4 years depending on cause of hardship (credit is directly affected by delinquent payments)

    • In contrast, reapplying for a loan in the future can be affected up to 7 years, and possibly more for a foreclosure. 

  • Set themselves up financially to rent if applicable

    • ​Possible relocation money ​​

    • Time to save up money or pay delinquent bills

Why do banks settle for less?

A short sale can save banks money compared to going through the foreclosure process. Banks are in the business of lending money, not managing real estate. 

  • Cost of Attorney fees 

  • Liability of holding the property 

    • Vandalism ​of the property (due to being vacant) 

    • Flooding or storm damage 

    • Pipes Freezing  ​​

  • Property is less likely to be damaged by the seller

  • Quicker turn over rate than a foreclosure 

What about other Lien Holders? 

Lien Holders are entities that have an unpaid debt attached to the house. This will come up in a title search and affect the sale of a house. In a short sale, the house is headed toward foreclosure. If the house goes into foreclosure, the 2nd lien, 3rd lien, etc. will usually receive nothing because the proceeds of the house won't be able to pay off the 1st lien. The bottom line is that a little is better then nothing which gives the lien holder incentive to received less than what is owed. 

Common Process for Short Sales: (3-12 months) 

  1. Prequalify Seller

  2. Seller wet sign signatures 

  3. Pull title 

  4. Send paperwork packet to bank 

  5. Get assigned to a negotiator  

  6. Schedule and receive Broker Price Opinion 

  7. List house on MLS

  8. Get under contract for a full price offer 

  9. Send to bank for approval 

  10. Close deal

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