What is a Short Sale?

by Jennifer Tremaine. Do not copy without permission.

What is a Short Sale?

A Short Sale is when you ask your mortgage company to take less than what you owe on your home. This is different than a foreclosure! Your home may not be in the foreclosure process, and you may not even be late on your payments.

Can I qualify for a Short Sale?

In most cases, yes – provided you list your home early in the process with a knowledgeable, licensed Realtor. You cannot Short Sale your home on your own, or when it is for sale by owner. You must also sign an authorization form, provided by your Realtor, which authorizes your Realtor to negotiate with your bank on your behalf. Your Realtor will get the Listing Agreement and Authorization Letter to the bank immediately, and then begin marketing your home.

Do I have to pay any fees?

No, in most cases the bank pays all fees. What will my Realtor’s commission be? The commission is determined by the bank, paid by the bank and is non-negotiable.

Sounds easy, but do I qualify?

You will not know if you qualify for a Short Sale until you have an offer or a Purchase Agreement on the home. Until you have a firm offer to show the bank, they will have nothing to approve.

What do I do when I get an offer?

First, your Realtor will contact a title company and have a settlement statement (called a HUD in the industry) drafted. A HUD details what the bank will receive after all fees have been paid. Second, your Realtor will submit the offer, HUD and qualification letter from the buyer to the bank. Third, you, the Seller, must submit a HARDSHIP PACKAGE.

What is a Hardship Package? This consists of five documents you must give to your Realtor, who will then submit them to the bank on your behalf. They include:

1. Hardship letter – stating how and why you are in a short sale situation (click link for a sample)
2. Financial P&L – lists of all your monthly income and outgo (click link for a sample)
3. Last two pay stubs (if you are working, otherwise explain in hardship letter)
4. Last two month’s checking account bank statements
5. Last two year’s tax returns (first two pages only). What happens after the offer and documentation is submitted? After all the paperwork is submitted,, your file is assigned to a bank negotiator. The negotiator does NOT have the final decision, but will prepare a recommendation and Broker’s Price Opinion (BPO) for the bank.

What is a BPO?

It is similar to an appraisal, except it is performed by a Realtor (and therefore much cheaper). It is basically a recommendation based on the values of similar homes in your neighborhood. The bank chooses the Realtor to do the BPO from an unrelated real estate company so that it is a fair value of your home.

Who makes the final decision on my Short Sale?

After the BPO is complete, your file may be reviewed by up to three different negotiators depending on the bank, the size of your loan and the offer.

How will I know if my Short Sale has been approved?

The negotiator will send an approval letter to your Realtor. The letter will outline all the terms and conditions of the Short Sale. If you are approved it will give a list of terms and conditions that must be met in order for you to be released from your lien.

What happens if I cannot meet the terms of the approval letter?

If the Buyer does not have financing in place, or if the closing does not happen by the date specified in the approval letter, the Short Sale may fail. Extensions are rare, and usually involve fines and penalties to the Buyer and Seller that can be as high as 10% per day.

I have both a 1st and a 2nd lien on my home. How does this change things?

Multiple liens mean that all the steps in the process must be done twice. For example, a hardship package must be sent to both banks. To work, the first lien holder must pay off the second lien. Your Realtor will have to coordinate the delicate timing. The first lien holder will not usually sign off until the second lien holder has done so, and the second will not sign off without the first - neither one wants to go first. It takes an experienced Realtor to properly execute a Short Sale on your behalf.

Who will be at the closing?

You, the buyer and the Realtor(s). The banks are not present – money is wired directly between them.

Will I get any money at the closing?

No, one of the conditions of a Short Sale is that the Seller will receive no funds at closing.

How does a Short Sale affect my credit? While a Short Sale will bruise your credit, a foreclosure will ruin your credit. If you cannot make your payment, or if you have to sell your home and it isn’t worth what you owe, ask your bank for guidance.

After the first month I miss a payment, how long do I have before the bank forecloses on my home?

In Michigan you have six months to catch up your payments and stop the foreclosure. Then you have an additional six months to pay off your entire mortgage (not just catch up) to stop the foreclosure process.

How do I know when I have reached the “point of no return”?

The second six-month period is called the Redemption Period, and begins with the “Sheriff’s Sale”.

A Sheriff’s Sale sounds scary – does a Sheriff actually come to my house?

No, but a person called a Server will. The Server will post a notice on your door that notifies you that the house is formally subject to a Sheriff’s Sale and the date of the sale.

What do I do after the Server arrives?

Don’t be afraid of the Server. Simply remove the notice from your door, read it and retain it for your records. Note that once you have a notice of a Sheriff’s Sale, you will have a foreclosure on your record, even though your Realtor still has six months left to Short Sale your home. At this point, if your home isn’t being shown regularly and the price is not dropping you should consider another Realtor.

Is their an exception for farmland?

Yes. Any property that has three or more acres has a Redemption Period of twelve months. This means that you can continue to live in the home for a full year. However, after six months the Server will post notice of a Sheriff’s Sale and you will have "foreclosure" on your record.

How long does the Short Sale process take?

From the time you list your home with a Realtor until the time it sells varies by neighborhood and by the price asked, but should be approximately 30 days. From the time you receive an offer to the time you receive an approval letter from the bank usually takes 3-4 months.

Why does this process take so long?

Every time a document is submitted to the bank it takes 72 hours to scan it, download it, review it, then lose it, re-send it, re-scan it, and download it again. By the next time it comes up for review, the Negotiator is on vacation, has quit, or the bank has gone bankrupt.

Can my Realtor speed up the process?

Yes, by getting you more showings and a legitimate offer. However, once the Short Sale is submitted, the bank will typically take 3-4 months. Your Realtor cannot change this.

I am trying to Short Sell my house, but haven’t had very many showings?

Your Realtor is failing you. One showing per week is average. You need a new Realtor that will insure your house is shown so that you can get an offer and stop the foreclosure process. Banks are reluctant to approve a Short Sale during the last 60 days of the redemption period. If a short sale takes 3-4 months and the last 2 months are out there is limited time left.

When I receive an offer should I sign it and consider my home Pending?

This depends on where you are in the Foreclosure process, the offer, and the buyer’s credit rating. You can trust an experienced Realtor to advise you and weigh each of these conditions to secure a successful Short Sale.

Remember, there are NO GUARANTIES in the Short Sale process.

Information herein deemed accurate but not guaranteed.