What Is a Short Sale?

An increase in foreclosure rates will inevitably bring with it an increase in short sales. But what is a short sale?

A short sale happens when an owner sells their house for less than - short of - their remaining mortgage balance, the proceeds of which go to the lender and in return the lender forgives the remaining balance. Selling the home as a short sale is one way to avoid foreclosure.

As a general rule, lenders lose money when they foreclose on a property. Consequently, they would rather not have to foreclose if it can be avoided. A short sale represents an opportunity to cut their losses because a short sale usually allows them to recoup more of the cost of the loan than a foreclosure process would.

However, don’t think that a short sale is an easy thing to accomplish. In order to get permission for a short sale, you must provide documentation showing a genuine financial hardship. And don’t think that the decision for accepting a short sale is solely in the hands of the lender. Sure the lender must first agree, but this is not the final word. If there is mortgage insurance involved, this company also gets input on the decision. If there is an investor backing the mortgage, they also get input as to whether to accept a short sale.

The transaction process for a short sale can be rather cumbersome as well, whether you’re on the buying or selling side. Many short sales fail due to additional demands by the lender, such as requiring the broker to reduce his or her commission and/or that the seller signs a document requiring him or her to pay back the shortfall.

If you’re on the selling side of a short sale, consider having your agent or other experienced professional negotiate with your lender for several good reasons:

  1. It is a time-consuming process involving many phone calls, waiting on hold and being told by the lender's representatives that documents were not received even when you've sent them several times.
  2. You are going through a difficult emotional time.  Using an agent can help relieve the pressure both in terms of the work load as well as in terms of having the experience and knowledge to handle the negotiations.
  3. There are many considerations and issues that arise.  Having an agent who's navigated many of these negotiations gives you more options to resolve any given issue that arises.
  4. The bank is paying your agent, not you.  If someone is asking you for an up-front payment, this should be a red flag to you not to work with them.  Using a real estate agent who negotiates the deal and finally gets paid a commission out of the bank's proceeds from the sale - not from your pocket - is a winning situation for you. 

And remember, if the lender does accept a short sale and forgives part of your debt, that may be considered taxable income and you must declare it as such to the IRS.  Consult a professional as to the current state of the law.

For a free consultation, Contact Frank.

Frank Delzompo Team
Broker-Owner 

Call or email now:
DIRECT: 951-326-7330
Email: Frank@Sand2Sea.us   

Zillow Ratings

"Sand to Sea Properties, Inc. provided stellar customer service from beginning to end. Throughout the entire process Frank and Lisa guided us and were always available to answer any question or concern, and were prepared for any curve ball throughout the home buying process. Their expertise in real  estate became such a comfort to know we were working with top notch individuals who were not just incredible at what they do, but also enjoyable to be around. We highly recommend Sand to Sea Properties for your home buying or rental needs."
~Rachel C.

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**Frank represents clients as a broker, and not as an attorney.  Do not rely on information on the internet solely; consult appropriate professionals for your particular financial and legal situation.  Information is pulled from many sources to serve you; it is deemed reliable and not guaranteed.