A Basic Clarification of the Short Sale

By Jennifer Vollmer

I’ve had a few people ask me about short sales, what they are, and how they work. So I’m going to take a few moments here to clarify the short sale process. It’s really quite straightforward when you grasp the basics.

The general definition is simply this: A short sale is a sale of real property in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. The sale must be approved by the financial institution holding the note.

This definition is essentially correct. Additionally, the seller must also prove hardship; a job loss, divorce, death in the family, etc. Anything accurate that will prove to the lender the seller is incapable of meeting their financial obligation.

The last tidbit seems to be where some get confused. I’ve had conversations with homeowners who bought at the peak of the market and are now quite unhappy their home is not worth what it once was and they tell me “well, I’ll just do a short sale!”.

Yes, that is a good reason to be annoyed. However, there is a huge difference between a homeowner who has suffered a serious financial hardship and can no longer afford to make their payments, and a homeowner who is simply unhappy that their property has dropped in value. Trust me, the lenders look at hardship very closely, and they will scrutinize all of the financial information of the seller.

While this type of sale is a far better option for homeowners in hardship than a foreclosure, it does not come without its consequences. First of all, the homeowner nets nothing from the sale, the sale only allows one to walk away with the financial burden of the mortgage removed. Next, it will ding ones credit, not catastrophically like a foreclosure, but a ding nonetheless. How badly depends on the lender and how they choose to report it to the credit agencies; there is no predicting this. It is also possible that even though the lender agrees to the sale at a loss they can still hold the homeowner responsible for the amount deficient and issue a deficiency judgement. Lastly, if one holds a security clearance, one will risk having that clearance reviewed at a minimum.

A short sale is not pretty. I don’t advise it if there is any way the seller can continue to make their mortgage payments. Although, when that is not possible, a short sale can be the best option available.

There you have it, short sales clarified, from the sellers side of the table.

Jennifer Vollmer
Realtor and Certified Distressed Property Expert
Avery-Hess, Realtors
Woodbridge, Virginia