What is a Short Sale?
With foreclosures on the rise in
Southern California, the team at
REALESTATE-SANTAMONICA.COM has been
getting a lot of inquiries about
short sales. Mostly people are
asking what they are. Well in
short…no pun intended, a short sale
is a transaction where the lender is
willing to take less money than what
is actually owed on the mortgage.
The point behind this is to avoid a
Foreclosing on a home is something
that the bank as well as the
borrower usually tries to avoid.
When the borrower defaults on a
mortgage (doesn’t pay for months in
a row), the borrower begins to
accrue much more than just the
mortgage payment. Quickly other
expenses begin to add up, such as
late fees, attorney fees etc…not
With a foreclosure the lender can
lose nearly half of the mortgage
amount because of the costs involved
in foreclosing on a property:
attorney fees, lost interest,
property maintenance, court costs
etc. Foreclosure is also a very
drawn-out process. It can take over
a year in some states. Because of
this, many lenders are amenable to a
short sale over a foreclosure so
that they can simply cut their
losses and move on.
Short sales can also be in the
homeowner’s best interest as well.
Most agree that the primary benefit
to the homeowner is that he/she is
able to get out from under the
mortgage without suffering through a
foreclosure. Additionally, the
homeowner’s debt is getting taken
care of for much less than is
actually owed on the home. The
homeowner’s credit is usually spared
some of the wear and tear caused by
foreclosure as well.
What is the process?
When a homeowner gets behind on the
mortgage and wants to try and avoid
foreclosure, the lender must be
contacted immediately. The last
thing a lender wants to do is
foreclose, but there is a process
that needs to be started to make a
short sale possible.
The lender will usually require
quite a bit of information
-Hardship Letter. Basically the
homeowner is telling the lender the
story behind being late with the
mortgage. Additionally the letter
should request a short sale.
-Bank Statements. This is to verify
assets…or sadly, the lack thereof.
-Income documentation. W-2’s or
1099’s to verify the borrowers’
-Value of Home. Banks will either
order an appraisal or a CMA
“comparative market analysis.”
CMA’s are generated by realtors and
we at realestate-santamonica.com can
help with that.
-Listing Agreement. This just
documents that the home has been put
on the market. After it sells, the
purchase agreement is included as
With any luck the lender will
approve the short sale and the home
will not go into foreclosure. If
the short sale occurs, a preliminary
proceeds sheet is generated. This
document lists the net proceeds of
the sale after the mortgage is paid
off, as well the closing costs and
all other related fees. This amount
will be negative…and is the
Before requesting a short sale, a
borrower should consult with his/her
attorney and/or accountant as there
are a few things to be mindful of.
First, the lender may require the
borrower to sign a note to repay the
shortage. Also the lender may file
a collection or judgement to recover
the shortage. A good real estate
attorney will be able to guide the
borrower through this.
The IRS may also come calling for
the income taxes owed on the amount
of the shortage. A tax professional
should be contacted by the borrower
Hopefully this shed a little light
on the world of Short Sales and
is here to help you.