The 5 most important things to know about short sales

Most people don’t dream about going through the short sale process, but it can have its benefits: sellers are no longer obligated to pay the debt, buyers can get a deal on their real estate property and banks get aYoung couple and real estate agent manager discussing contract at least some of their investment back. But what exactly does a short sale mean to sellers? What does the process look like and how does it affect a seller’s ability to buy a home in the future? Here are some of the most important positives – and notable negatives – to a short sale.

1. Not a foreclosure: On the plus side, a short sale doesn’t equal a foreclosure. The homeowner is still involved in the short sale process, unlike a foreclosure that is managed almost entirely by the bank. As a seller, you don’t have to worry about a short sale affecting your credit report in the same way. A note will still appear on your report, but it will be less damaging and stay on the report for less time. Sellers who complete a short sale can often take out another home loan in as little as two years, unlike with a foreclosure, which could prevent you from securing a mortgage for up to 10 years.

2. The name is a misnomer: One negative that sellers experience with short sales is the time it takes. The “short” in short sale doesn’t refer to the time it takes to complete the process, but instead refers to a seller being “short” in funding needing to pay off a loan. Short sales can take months – sometimes up to a year or longer – to close. This is because the bank doesn’t issue a selling price, but rather accepts buyer offers. This kind of negotiating can take months to successfully complete and if the bank doesn’t accept the offer, the process takes even longer. Because most sellers are already stressed about making monthly payments (the reason for needing a short sale in the first place), the longer the process takes, the more stressful it can be. Most sellers, however, are encouraged by the fact that there is a way out that doesn’t involve foreclosure.

3. There are several eligibility requirements: Short sales can help you avoid foreclosure, but there are a few requirements you have to meet first, including:

  • Owing more on your mortgage than your house is currently worth.
  • Proof of financial hardship, such as a divorce, recent lay off, or significant medical expenses. Your bank or lender will need to see the paperwork that proves any of these situations.
  • A reason for not being able to afford the monthly mortgage payment, such as an adjustable rate mortgage that has changed to a rate that’s unaffordable for your current income.
  • Ineligibility for a loan modification; if your loan can be modified, you can’t pursue a short sale.

4. It can interfere with your ability to file for bankruptcy: Often, sellers who are considering a short sale are also facing other monetary concerns, such as a large amount of debt. Because of this, they might also be considering bankruptcy to alleviate these other debt amounts. But while filing for bankruptcy may help with the ability to relieve credit card or medical debt, it may also interfere with your ability to sell your home. After a foreclosure filing, banks and other debt collectors are unable to collect from you, at least temporarily. A short sale is technically a type of debt collection in the form of mortgage repayment, and therefore is in competition with bankruptcy rules. It’s important to talk to a legal expert to understand which options are best for you and address all your financial concerns.

5. You still need an agent: A short sale may not be a traditional real estate transaction, but it still requires a real estate agent. In fact, a short sale requires an agent who has experience with short sales. With their knowledge of and experience in short sale real estate, agents can help the process go faster by helping you organize paperwork that the bank is more likely to review quickly and also by giving you more channels of advertisement about your property. In addition to their own website promotion, they can share your listing on their social media platforms and all third-party real estate sites like, Zillow and more.

A short sale may not be the perfect, preferred real estate process, but it might be part of the solution toward financial stability. Because a real estate sale is a legal transaction transferring property from one individual or business entity to another, having expert legal advice should be a high priority, especially when navigating the unpredictable nature of a short sale. For a free consultation, answers to your questions, and expert suggestions for your situation, get in touch today.

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