What Is A Short Sale, You Ask?

It happens frequently,  someone will stop me in passing, or at a social situation, and want to chit-chat about the real estate market. When the discussion turns to asking me what a short sale is, the room gets quiet. It's almost as if everyone has heard it, but not everyone is willing to admit they aren't quite sure what it means.

An easy, over-simplified answer: When a home is being sold for less than is owed to the mortgage company, the mortgage company is being "shorted" the money.

To be technical, here is a more official definition: 1. A homeowner is "short" when he owes more than his home is currently worth. 2. A short sale can occur when the homeowner enters in to negotiations with his mortgage company to sell his home for fair market value and the mortgage company agrees to accept less than the full balance owed.

There are a few steps to the process. First, the homeowner must apply for and qualify for a hardship. It can be financial such as the reduction of income or it could be personal such as divorce. Once the homeowner is approved to enter into a short sale, he must obtain the services of a qualified, licensed real estate agent to assess the fair market value of the home. The current condition of the home itself and the local market conditions both weigh in this number.

When the market analysis has been done and submitted to the mortgage company, the home can be listed to find a qualified buyer. Your goal and the goal of the mortgage company will be to find a qualified buyer willing to pay a fair market price for the home. This is not the time for a "fire sale." Often, there is a deal to be had, but the mortgage company will turn down unfairly low offers, so your agent will have to help guide you in choosing which offer to submit for approval. Once an offer is submitted for approval, time may elapse. The potential buyer must be informed of a likely wait time.

If the deal is approved, a settlement can be reached. Most likely, any remaining debt will be forgiven. If there is more than one lender, all the above must be done for each lender and all have to approve the sale. Of course, each situation has a unique set of circumstances.

The best possible thing you can do is hire a competent and trusted local real estate agent who is experienced at negotiating short sales and who can help you successfully navigate through this maze of red tape and paperwork.