SELLERS' CORNER

What is a Short Sale?

One of the options for homeowners facing foreclosure is known as a "short sale," the sale of a home for less than the mortgage amount. While this option can benefit both buyers and sellers, it's important that homeowners understand the process before assuming it may be the solution to their problems.

In order to qualify for a short sale, the seller must meet the following requirements:

The home must be verifiably worth less than the mortgage balance. Homeowners should do the necessary research and have that information available prior to contacting the lender.

The borrower must demonstrate a hardship such as: loss of income, bankruptcy, medical condition, divorce, relocation, increase in mortgage rate, or other such conditions.

Borrowers that have been making monthly payments on time may be pushed to the bottom of the list. Lenders are swamped with applications and will be reluctant to agree to a short sale to those whose loan is not delinquent.

Borrowers must meet qualification requirements. Net monthly income should be less than monthly expenses and such expenses must be reasonable. Lenders will not consider frivolous expenses.

The borrower must be able to show a lack of assets. Non-retirement savings or cash on hand may be subject to forfeiture to pay a part of the lender's loss.

Some lenders are asking borrowers to sign a note for the short sale difference and may ask them to make monthly payments for all or part of the loss.

The borrower must provide a letter explaining why they cannot continue making the mortgage payments or the difference between the amount owed versus the proposed selling price. The letter should also state that because of the hardship described that they will not be able to continue making mortgage payments.

Short sales are not the solution for every borrower, and lenders can sometimes be extremely harsh in their analysis of qualifications. Borrowers must also understand that there may be tax consequences to a short sale and that their credit score will decline similarly to a foreclosure.