What is a Short Sale?

A short sale occurs when a homeowner sells their property for less than the outstanding mortgage balance, often due to financial hardship. The lender—usually a bank—agrees to accept the sale proceeds as repayment and may forgive the remaining debt. This arrangement allows the seller to avoid the ramifications of foreclosure, and the buyer potentially acquires the property at a lower market price.

Key Steps in the Short Sale Process

1. Determining Eligibility:
Not all properties qualify for a short sale. Typically, the homeowner must prove financial hardship, indicating they cannot continue to make mortgage payments. Examples include unemployment, divorce, medical emergency, or a mortgage payment increase.

2. Seeking Lender Approval: Homeowners must obtain their lender’s consent to proceed with a short sale. This step involves submitting a financial package that includes hardship letters, financial statements, asset disclosures, and more.

3. Listing the Property: The seller will list the property, often at a competitive market price. It’s crucial to work with a real estate agent experienced in short sales to navigate complexities.

4. Handling Offers & Approval: After receiving an offer, the seller cannot unilaterally accept it. Instead, the lender must approve the offer, a process that can take several months.

5. Finalizing the Sale: If the lender approves the offer, the transaction proceeds like a standard real estate sale. The buyer closes on the house, and the lender typically forgives the remaining mortgage balance.

Advantages and Disadvantages of Short Sales

For Sellers:

  • Avoids the damaging credit impact of a foreclosure.
  • Reduces or eliminates mortgage debt.
  • Provides a dignified exit from the property.

However, sellers might face:

  • Potential tax implications on the forgiven debt.
  • A lengthy, sometimes uncertain, process.
  • Damage to credit, though less severe than a foreclosure.

For Buyers:

  • Opportunity to purchase property below market value.
  • Less competition than traditional sales.

However, buyers might encounter:

  • A long waiting period for lender response.
  • Potential for rejection of the offer by the lender.
  • Possible need for repairs or maintenance, as short sale properties are often sold “as-is.”

Tips for Navigating a Short Sale Successfully


1. Enlist an Experienced Agent: Whether you’re a buyer or a seller, hiring a real estate agent with short sale experience is crucial. They understand the process, the paperwork, and can often negotiate effectively with banks.

2. Prepare for a Lengthy Process: Short sales are known for taking more time than traditional transactions. Buyers and sellers need to set realistic expectations and be patient.

3. Maintain Transparent Communication: For sellers, honest communication with the lender is paramount—disclose all assets and hardships transparently. Buyers should also keep open lines of communication with their agents to understand the process’s status.

While short sales can be advantageous, they’re complex transactions requiring understanding and patience. For sellers, a short sale offers a way out of financial hardship and the chance to rebuild without the heavy blow of foreclosure. For buyers, it’s an opportunity to invest potentially below market value. Regardless of your position, knowing the intricacies ensures a smoother, more informed real estate experience. For further assistance or inquiries about short sales, please contact our real estate agents.