Short Sale

Short Sale

What is a Short Sale?

A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, the property owner cannot afford to repay the liens’ full amounts, and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.

Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any shortfalls on the loans, unless specifically agreed to between the parties. However, in California, legislation was passed to preclude deficiencies after a short sale is approved. The same is true of lenders on first loans and lenders on second loans — once the short sale is approved, no deficiencies are permitted after the short sale. (SB 931, SB 458 – Calif. Code of Civil Procedure §580e).

A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. Negotiating a short sale is not easy, and it is highly recommended to use a licensed real estate professional who specializes in short sales.

Benefits of a Short Sale

  • Release of all financial liability from the property
  • No repayment of the loan
  • No payments to lender or property taxes during the sales process (Live for Free)
  • Ability to buy another property in 2 years with as little as no money down
  • Properties sold as-is
  • No cost of any sort to the seller throughout the transaction (all fees are paid by the lender)

Do you qualify for a Short Sale?

You may qualify for a short sale if:

  • You have a hardship (Example: job loss, divorce or medical emergency)
  • You owe more on the mortgage than your home is worth
  • You are unable to afford your current monthly mortgage payment
  • You are unable to modify your current home loan

What is a HAFA Short Sale?

HAFA, which stands for Home Affordable Foreclosure Alternative is a government program designed for homeowners who cannot afford their mortgage payment and retaining their home is not an option. The homeowner wants to avoid a foreclosure and can exit home ownership without the liability of mortgage debt.

Benefits of a HAFA Short Sale:

  • No Deficiency Judgements
  • No Cash Contributions at Closing
  • $3,000 to Seller for Relocation Assistance
  • No Promissory Notes
  • Second Mortgages: Additional Incentives, up to $6,000 more at closing

Eligibility Requirements for a HAFA Short Sale:

  • Home must be or have been the primary residence in the last 12 months
  • Seller must have a hardship
  • Mortgage originated on or before January 1, 2009
  • First lien mortgage cannot be a government loan
  • Mortgage is delinquent or default foreseeable
  • Current unpaid principle balance is $729,750 or less

Steps for a Short Sale Transaction

1. Perform a property valuation. A short sale will be approved by lenders only if the borrower owes more than the property’s fair market value.

2. Contact the lender to ask for a short sale application.

3. Collect all financial data and other information required by the lender. Include a letter detailing the borrower’s current financial situation and hardship.

4. List the property for sale.

5. Receive and make officially valid a purchase contract from a qualified buyer.

6. Send the purchase contract to the lender. Include all the lender-required documents (Requirements vary depending on the lender).

7. Be patient and be persistent. It should take 30-45 for a purchase contract to go through the lender’s system. However, the process could take longer.

These steps will be taken with each lender that is involved. Every lender has its own process. If there are 2nd trust/mortgages the process may take twice as long. The reason is these lender will only start processing their short sale after receiving written approval form the first trust.

Further, keep in mind that these steps vary depending on the requirements of the lender and/or the advice of the real estate professional that guide you through the short sale process. It is also recommended that you consult with an attorney and/or licensed tax professional to understand all your legal and tax obligations related to a short sale.


*The accuracy of all information, regardless of source, is deemed reliable but not guaranteed and should be personally verified with the appropriate professionals.