A short sale is a real estate transaction in which a homeowner sells their property for less than the amount owed on the mortgage.  The homeowner's mortgage company (or companies) agree to accept less than the full balance of the loan at closing. The amount the bank receives is short of the amount owed, thus creating a short sale.

The short sale process is actually backwards from what most homeowners expect. We do not go to your lender, ask them if we can short sell the home, determine the amount that your lender is willing to accept, and then list the home for sale. Rather, we must first secure a purchase contract.

We then present the contract to your lender along with all the detail they require to prove that accepting the short sale makes more financial sense than any other option available (to your lender).

The 10 steps of the short sale process are as follows:

• The Consultation – We’ll Discuss Your Situation and Formulate a Strategy
• Completion of the Short Sale Documentation
• List Property for Sale
• Open Short Sale Negotiation/Conversation With Your Lender
• Obtain a Purchase Contract
• Submit the Contract
• Negotiate With Your Lender(s)
• Secure Short Sale Approval
• Facilitate the Escrow Process
• Close the Short Sale!

A bank may agree to a short sale for several reasons including, but not limited to, the following:

1) The loan is in default and foreclosure is imminent.
2) A short sale mitigates greater loss than any other option available to the lender.
3) The homeowner has suffered a financial hardship and can no longer afford payments.
4)The property is in poor condition.
5) Some banks are required to have loss reserves of 6 times the retail value of each REO property on hand.

A bank may not agree to a short sale for the following reasons:

1) A financial hardship does not exist and the bank believes the home is affordable.
2) The loan payments are current and foreclosure will not occur anytime in the near future.
3) Foreclosure (or another option such as modification, if agreed to) nets the lender a greater return than a short sale would.

There is NO cost to you.

NO.   Most mortgage companies are allowing people to keep their retirement accounts and 401K’s.  This is because these are almost always protected in a bankruptcy. 

First, you must be upside down (you must owe more on your home than it is currently worth) on your home. Next, a financial hardship must exist, or the bank must see a financial threat. Lastly, in most cases you will have to be in default on your mortgage payments.  (A documented military or job transfer is one of the few exceptions).  The bottom line is this – if you are a financial risk to your bank then there is a strong chance that you qualify for a short sale.

Yes, investment properties can be short sold just like primary residences. The process is not much different. The same documentation is required, and proof that the homeowner is a financial threat to the bank must be provided.

Oftentimes, the sale of the property is a bit more challenging because investment property tenants must cooperate in showing and maintaining the property. Furthermore, if the tenants do not want to vacate the property their lease must be honored. Therefore, only buyers not wanting to immediately reside in the property may be interested in purchasing.

There are cases where homeowners have completed short sales without falling behind on their mortgage payments. Such cases are rare and are usually limited to documented military or job relocations.

We do not advise clients to fall behind on their payments. However, we will share with our clients that based on our experience the likelihood of completing a short sale without being behind on payments is slim.  Simply put, lenders are not motivated to accept less than they are owed when being paid on time each and every month.

You must be a financial risk to your lender. Many of our clients have what banks consider to be “traditional” financial hardships – loss of job, loss of income, a medical condition, divorce, forced job relocation, etc. Others do not have such hardships, but have discontinued making payments to their lender. When a homeowner is a financial risk to a bank, regardless of whether or not a hardship exists, the bank is usually motivated to mitigate their loss via a short sale.

The fact of the matter is this…the further one falls behind on their mortgage payment the closer they are to foreclosure.  The closer one is to foreclosure the less relevant their actual hardship becomes to their lender.  The lender is faced with a decision regardless of the homeowner’s hardship (or lack thereof). It is either going to work with the homeowner on a short sale and net $X or it is going to foreclose and net $X minus $30K-$50K (on average a foreclosure costs a bank roughly $30,000 to $50,000).

• Unemployment or Reduced Income
• Divorce
• Death or Illness in Family
• Medical Emergency
• Job Transfer
• Bankruptcy
• Adjusted Interest Rates & Increased Mortgage Payments

After evaluating the hardship, the bank will analyze the homeowner’s current financial situation by requesting items such as bank statements, pay stubs, tax returns, and/or other relevant financial detail. The reason for this is twofold – first, the bank wants to corroborate that what is stated in the hardship letter ties to the homeowner’s financial data, and second the bank wants to be assured that the homeowner does not have significant cash reserves that could be utilized to make future mortgage payments.

Most lenders require the following documents for short sale consideration:

• An authorization form (authorizes us to speak with your lender on your behalf)
• A hardship letter
• A financial form (detailing your income, expenses, and debt)
• Past two paystubs for all borrowers
• Past two months’ bank statements
• Past two years’ tax returns

We strongly encourage you to stay in your home until it is necessary for you to leave.  The bank and all other parties prefer your property not be vacant and thus more prone to vandalism.  And this will save you the added expense of paying rent on a rental property.

A Notice of Trustee’s Sale (signaling the start of foreclosure) is filed when payments are 4 to 6 months in arrears. Foreclosure is a 3 month process. Therefore, the average homeowner has roughly 7 to 9 months after payments are stopped before foreclosure occurs.

That depends on a number of factors, but most of our short sale listings get offers within 30-60 days and close in 4-7 months.

The Mortgage Forgiveness Debt Relief Act of 2007 provides tax relief to many homeowners who occupy the home as their primary residence or who can prove insolvency.  Chances are, you’ll find you are protected. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please read more directly from the IRS website by clicking here.  This Act is scheduled to end in 2012.

The tax consequences of a short sale are the same as a foreclosure.  If you are deciding between the two, a short sale is almost always the better choice.

Before making your final decision, first consult a CPA or Tax Preparer.

This is always a very challenging question to answer as each person’s credit history is so unique.   The average score decreases by 50-125 points.  Typically, the person with a more established credit history who continues to make on time payments on all other debt obligations will recover much more quickly than the person who has little credit history and is behind on other payments.

There are two other aspects of credit impact that you’ll want to consider– the ability to repurchase a home and the actual reporting of the short sale versus foreclosure. Fannie Mae and Freddie Mac, who control approximately 50% of the loan market, have stated that there is a 2-3 year hold period from the time a short sale is completed until the point at which they will consider a short seller for financing on a new purchase. This hold period extends to 5 to 7 years if foreclosure occurs. Furthermore, upon completion of a short sale, the sale is reported to the credit bureaus as “settled”, “paid in full for less”, or some variation thereof. Foreclosure is reported as exactly that: “Foreclosure”. A foreclosure will remain on your credit for 10 years, is on public records permanently, and could potentially impact your ability to obtain a new job, obtain security clearance, and/or secure new financing for other types of purchases.

The purpose of a short sale is to relieve you, the homeowner, of future liability from any and all loans secured to the property. If the short sale is performed correctly then the main benefit to the homeowner is to receive relief from the loans, so that you will not be sued for deficiency.

In order to achieve that relief, any short sale agreement between a seller and the seller’s lender should have definitive language relieving the seller from future liability of the loan.  Because there are many factors which impact whether or not you will be protected from future deficiency judgments in either a short sale or a foreclosure, we strongly advise that you consult with an attorney prior to listing your home and have your short sale approval letter reviewed by a real estate attorney.  There are some instances where a foreclosure will offer you more protection than a short sale, and your attorney will advise you of that.  A one hour consult is often sufficient, and it usually includes review of your short sale letter.

Please click here to request a short article explaining deficiency judgments, written by Attorney Dax Watson of Mack, Drucker and Watson.

Arizona's laws that prohibit deficiency judgments are found in Arizona Revised Statutes Sections 33-814.G and 33-729.A. 

In most peoples' minds, selling a property for less than they owe or simply giving it back to the bank through a foreclosure seems to be the same thing.  Nothing could be further from the truth. There are significant differences in credit reporting, security clearances, future home-buying possibilities and financial liabilities that homeowners need to understand in order to protect themselves.  Please visit our Short Sale vs. Foreclosure page to review the significant differences between the two.

HAFA stands for Home Affordable Foreclosure Alternative.  It is a government program designed to assist homeowners who are or will be in default on their mortgage.

HAFA Benefits to the Homeowner
• Borrowers receive $3,000 for relocation assistance.
• Lenders must allow the opportunity for the borrower to attempt a Short Sale or accept a Deed-in-Lieu (DIL) of foreclosure before following through with a foreclosure.
• Borrowers are fully released from future liability for the first mortgage debt – lenders cannot ask for a cash contribution, promissory note, or deficiency judgment to complete a short sale or DIL.  Additionally, junior lien holders (i.e. 2nd mortgages) who participate in the HAFA incentives must also release borrowers from future liability.

Qualifications and Eligibility
In order to qualify for HAFA, borrowers must already meet the basic eligibility criteria for the HAMP modification program:
• The property is the borrower’s principal residence.
• The first mortgage originated before January 1, 2009.
• The mortgage is delinquent or default is reasonably foreseeable.
• The mortgage’s unpaid principal balance is no more than $729,750 (higher limits for 2 to 4 unit dwellings).
• The borrower’s total monthly mortgage payment exceeds 31% of their gross income.
• The mortgage also needs to be serviced by a lender who is participating in the HAMP program (the majority of lenders are).
For more information, please visit Making Home Affordable.gov