What is a Short Sale?
A short sale is a real estate transaction in which the homeowner sells the property for less than the outstanding balance on their mortgage, with the lender’s approval. Instead of foreclosing, the lender agrees to accept a payoff amount that is “short” of the full debt.
About a Short Sale
1. How a Short Sale Works
Owner falls behind on mortgage payments and contacts the lender to avoid foreclosure.
Listing price set at or below market value—and usually below the mortgage balance.
Offer submitted by a buyer, then conveyed to the lender’s loss‐mitigation or asset‐management department.
Lender reviews buyer’s offer plus documentation of the seller’s financial hardship.
If approved, the lender issues a “short payoff” amount; the sale closes and the lender absorbs the deficiency (or may reserve the right to pursue the seller, depending on state law and the payoff agreement).
2. Key Characteristics
“As-Is” condition: Sellers usually can’t afford repairs, and lenders won’t fund them.
Lengthy approval: Underwriting by the bank’s loss-mitigation team can take weeks or months.
Documentation required: Sellers must provide hardship letters, tax returns, bank statements, etc.
Potential deficiency: In some states, lenders can pursue the seller for the difference between sale price and loan balance—unless waived in the short‐sale agreement.
3. Pros & Cons
| Pros | Cons |
|---|---|
| Can avoid the credit hit of a full foreclosure | Approval process can be slow and uncertain |
| May relieve homeowner of full debt (if deficiency waived) | Property sold “as-is”—repairs unlikely |
| Buyers may get below-market pricing | Lender may counteroffer or reject, forcing a foreclosure risk |
| Often less stigma than foreclosure | Multiple liens (e.g., second mortgages, tax liens) complicate |
4. How Buyers Find Short Sales
MLS filters: Search under “Short Sale,” “Pre-foreclosure,” or “Subject to Lender Approval.”
Specialized sites: Some real‐estate portals tag or aggregate short‐sale listings.
Experienced agents: Look for agents certified in short‐sale negotiations—they’ll understand lender requirements and timelines. Contact us at (866)577-5262
5. Short Sale vs. REO
Short Sale
Seller still owns the property and negotiates payoff.
Requires proof of financial hardship and lender sign-off before closing.
REO (Real Estate Owned)
Property already foreclosed and now bank-owned.
No hardship documentation; often quicker to close once you agree with the bank.
Bottom line: A short sale lets a struggling homeowner sell before foreclosure, but it demands patience, paperwork, and lender cooperation. Buyers can often snag a discount, but must be prepared for a potentially protracted approval process and “as-is” condition.