What is a Short Sale?
Short Sale Definition, Goals and Time Lines
A short sale is selling a home or rental property when the debt is greater than the property's market value. Many refer to this situation as being "upside down". Unlike a regular real estate transaction, a short sale requires lender approval.
Short sales are common in today's market, and lenders are receptive to and will approve short sales. The term "short sale" means that the banks are taking a "short payoff".
A short sale is an option that enables a homeowner to avoid foreclosure. The primary requirement from the lender's perspective is the homeowner's ability to show a financial hardship. Simply having a property that is upside down is not a hardship. Common reasons for a hardship might include:
- Loss of income
- Illness
- Divorce
- Relocation
We have included a sample hardship letter. Generally speaking, if your monthly income is less than your monthly expenditures, you have a financial hardship.
Short Sale Goals
The goal of any successful short sale is to have the bank release their lien(s) and in addition, relieve the borrower of any further personal responsibility for the debt. Short sale approvals and their terms, however, can vary widely. The outcome can depend on the type of loan on the property - purchase money vs. non-purchase money (link here). It can depend on whether the property is owner occupied or an investment property. It can depend on the sheer magnitude of the loans. And It can depend on the financial status of the borrower. An experienced short sale realtor/negotiator will get the best outcome based on your particular situation.
Short Sale Costs
In a short sale transaction, lenders typically pay for the costs incurred in the transaction. These will include items such as title fees, escrow fees, realtor commissions, recording fees, etc. (An exception are HOA dues - please see short sale success factors). At the end of the process, the goal is that the homeowner will not have to contribute. On occasion, however, depending on asset levels or income, a bank(s) may ask for a contribution. It is our job to negotiate the best possible terms for our clients, and it is always the clients final decision.
Check out a short video on possible costs of a short sale now!
Short Sale Time Lines and Process
Short sales were called "long sales"! But the good news is that banks have staffed up and improved their processes. A homeowner should plan that a short sale transaction could take 2-3 months - best case. If a large, institutional lender is involved, or if there are multiple loans, the transaction could take 6 months or more. The timeline will be largely driven by the lender(s). While the short sale process is complex, a simple overview of the timeline is as follows:
1. Homeowner lists the property with a realtor who markets the property and gets an offer - approximately 4 to six weeks;
2. Realtor submits short sale package to the lender; lender review and approval - potentially 1-4 months;
3. Escrow and closing - ~30-45 days.
