Frequently Asked Short Sale Questions

Here are some frequently asked short sale questions that are very helpful especially if you are just getting started or considering short sales as a means to acquiring pre-foreclosures.

1. Define a short sale?

A short sale is really a form of pre-foreclosure sale and occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional real estate acquisition... but without the luxury of time.

2. Who pays the real estate commission and title fee?

The lender pays all the closing costs that are associated in a short sale transaction including the real estate commission and title fee.

3. What happens to the seller's credit rating when they allow an investor to short sell their property?

What normally happens is the loan will show up as "paid" on their credit report; however there will be a notation that says "settled for less than originally owed" or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report.

4. Can an owner profit from a short sale?

The seller cannot profit (monetarily) from a short sale.

5. How do bankruptcies affect the possibility of doing a short sale?

Most lenders won't consider a short sale if the homeowner is in bankruptcy...why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.

6. Can somebody tell me what documents I need to provide in a short sale package?

Each lender has different requirements. It is typical to require a hardship letter, pay stubs, bank statements, personal financial sheet (monthly budget), amongst other things.

7. What percentage of mortgage companies send someone out for an appraisal on a possible short sale?

All lenders order a Broker Price Opinion or full appraisal of the property before making their decision to accept or reject the short sale offer. This is their only way of assessing the value of the property.

8. How late in the pre-foreclosure/foreclosure process can you start a short sale?

If you are considering a short sale, call a qualified real estate agent and your lender today. If already in default or soon to be, you should have your home listed for sale or working on a loan modification with your lender. You can work on short sale up until the end of your redemption period.

For informational purposes only not intended as legal advice, consulting with an attorney or tax advisor is recommended.