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What is a Short Sale Anyway?

An increase in foreclosure rates will inevitably bring with it an increase in short sales. But what is a short sale?

A short sale happens when you sell your house for less than your remaining mortgage balance, the proceeds of which go to the lender and in return the lender forgives the remaining balance. Selling your home as a short sale is one way to avoid foreclosure.

As a general rule, lenders lose money when they foreclose on a property. Consequently, they would rather not have to foreclose if it can be avoided. A short sale represents an opportunity to cut their losses because a short sale usually allows them to recoup more of the cost of the loan than a foreclosure process would.

However, don’t think that a short sale is an easy thing to accomplish. In order to get permission for a short sale, you must provide documentation showing a genuine financial hardship. And don’t think that the decision for accepting a short sale is solely in the hands of the lender. Sure the lender must first agree, but this is not the final word. If there is mortgage insurance involved, this company also gets input on the decision. If there is an investor backing the mortgage, they also get input as to whether to accept a short sale.

The transaction process for a short sale can be rather cumbersome as well, whether you’re on the buying or selling side. Many short sales fail due to additional demands by the lender, such as requiring the broker to reduce his or her commission and/or that the seller signs a document requiring him or her to pay back the shortfall.

If you’re on the selling side of a short sale, consider having your agent or other experienced professional negotiate with your lender for a better deal. And remember, if the lender does accept a short sale and forgives part of your debt, that is considered taxable income and you must declare it as such to the IRS.

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Greg Drake
Lakewood, CO 80228
Phone: (303) 884-0990
Email: greg@realtyprosco.com
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When we sold our home last summer, we were referred to Greg Drake at Realty Professionals. Greg and his staff were so knowledgeable, professional and unbelievably helpful! The stager, that Greg hired, came into our home and made several recommendations and changes to allow our home show beautifully! Our home went on the market and we had 16 showings in the first day alone! At the close of business that very day, we had 11 offers that were either at or above asking price! My husband and I could not have been happier! However, there were several things that came up during the inspection but we did not have to stress about researching companies and getting bids and meeting deadlines. Greg did it all! He had an entire team of trusted, reasonably priced contractors who were able to take care of all our problems that same week! We could not have been more please with the honesty, professionalism and hard work that Realty Professionals provided for us! I cannot imagine having to sell another house without them! I would HIGHLY recommend them to anyone looking to sell or buy! Michelle S.
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