What is a "Short Sale"? Am I eligible for a "Short Sale"?

What is a "Short Sale"? Am I eligible for a "Short Sale"? These are a few questions that I have been asked recently. Actually, ever since I became a Certified Short Sale Professional, I have been getting these questions ever more frequently.

In short, a short sale is when the lender (bank, mortgage company, etc...) agrees to take a lower amount than what you owe to accommodate the sale.

Why would the bank take a lower amount than what I owe? There are actually a few reasons:

Banks don't want your house. They don't want to foreclose on your home. There are a ton of legal fees that are involved in the foreclosure process.

They don't want to get involved in the eviction process.

They don't want to rehab the house. Have you been in any REO homes? Alot of them have been stripped and trashed. I dread showing bank owned homes, because you never know what you are going to find in them. Here is a picture of a bank owned home that I saw on www.uglyhousephotos.com:

With a short sale, the owner is usually still living in the home until it is sold. There is still a bit of "Pride of Ownership". The home owner believes they are "working" with the bank to solve the problem, rather than just dumping the house in the banks lap.

The bank may agree to a short sale because they know that a short sale price may be the highest price they are offered. Banks know that the foreclosed sale price will be significantly lower than the short sale price.

Why should I try to talk the bank into agreeing to a short sale? Why not let them foreclose on me and drop the house in the banks lap? Sometimes foreclosure and bankruptcy are inevitable. However, why not try and help the bank out with the house you purchased? Also, look at it credit wise. If you miss 2-5 months payments while you are negotiating your short sale, recent reports show that your score will drop 30-60 points. If you get foreclosed on, your credit will drop 140-200 points. Recovering from a short sale seems to be a little easier than recovering from a foreclosure.

Am I eligible for a short sale? Are you delinquent or in default? Have you experienced a hardship? The hardship doesn't have to be monumental, but it does have to be proven. You will be asked to fill out a financial statement. Is the value of the property less than what is needed to pay off your loan(s), any liens or encumbrances and all real estate selling costs?

There is also a lengthy package that you will have to fill out and submit to the bank once you receive an offer on your "short sale". Be sure your real estate agent is aware of the package. A poorly put together package can be the difference in your home selling in 3-5 months or a year later.

I hope this has given you a better understanding of what a short sale is.