What is a Short Sale

If you’ve tried loan modification without success and your current mortgage payments are difficult to handle, your only choice may be to give up your home. Many homeowners are turning to short sales instead of a foreclosure. A short sale is a sale where the lender allows the owner to sell a home for less than the value of the loan (or loans). The difference between the sale price and the loan amount is usually forgiven by the lender, but sometimes the lender will ask for a promissory note on a portion of the deficiency.

Short sales are a lengthy process, sometimes up to 3 months. Why would a seller choose an agonizing short sale rather than a foreclosure?

  • The waiting period to buy again is less than after a foreclosure. Currently the Fannie Mae guidelines specify that homeowners that with a foreclosure must wait 5 years before they can buy again and use a loan bought by Fannie Mae (the largest buyer of mortgages). Homeowners with a short sale need only wait 3 years according to the current guidelines.
  • A short sale may be a better way to settle your debt than a foreclosure. Some states have an “anti-deficiency” statute where banks cannot legally pursue the debt from a foreclosure. Banks in other states that do not have this statute can sue you for the deficiency. If you have some exposure in a foreclosure, you may be better off negotiating with the lender in a short sale rather than waiting to see if the lender comes after you in a foreclosure. Make sure you get a short sale acceptance letter that forgives you of the debt in the future.

When deciding whether a short sale is for you, you should consult with a real estate lawyer, an accountant and a real estate agent with short sale experience to determine what choice you should make.