What is a Short Sale? In terms I understand, please!!

 So what is a short sale, really?  

Being a REALTOR in this market, I get asked at least every day (or maybe it just seems like it), “What does Short Sale actually mean?”.  This is such a common term these days, that I thought it was important to share my interpretation of a short sale.  I say “my interpretation” because I am going to give you the no-mess, easy to understand version.  It won’t include a lot of technicalities, because, well frankly, because you will get bored and stop reading! 

So, here is my definition of a short sale.  A short sale occurs when a homeowner lists their home for sale, but receives an offer from a buyer for less than they owe on the home.  So, say a homeowner owes $200,000 on their property and an offer comes in for $125,000 because that is the “current market value” of the home.  The homeowner then has to submit the offer to their bank for approval.

Not just anyone can sell their home “short”.  In order for the mortgagor to approve a short sale, you need to have some type of hardship that is preventing you from paying your mortgage, or you must be able to prove that a hardship is coming (i.e. you lost your job and will only be able to pay your mortgage for 3 months without that job, or a medical diagnosis that will prevent you from working).  Then, the bank actually has to “approve” the short sale.  Banks will not start working with the homeowner on a short sale, however, until a buyer has submitted an offer on the home.   

If you are having trouble paying your mortgage, the first thing you should do is to talk to a qualified REALTOR who has some experience in handling short sales.  (A REALTOR with a “CDPE” or “Certified Distressed Property Expert” designation is a good place to start.)  It is also important to seek legal and tax advice from qualified experts.

Short sales are a great alternative to foreclosure because they will allow you to buy a home sooner after the short sale is completed (generally 2-3 years depending on the circumstance) than if you have a foreclosure (more like 7-10 years depending on circumstance).  Also, in the state of MN, if you have a foreclosure, the 1^st lien holder cannot legally come after you in the future to collect the deficit, but a 2^nd lien holder can try to collect on any type of secondary lien.  A short sale does not guarantee that you the 2^nd lien holder will not try to collect, however, as part of the short sale negotiation, the seller should try to get a mortgage “satisfaction” letter stating that the lien has been “released”.

The biggest downside to a short sale is that it can be a long process and involves the homeowner to submit updated paperwork each month.  Whether you are interested in selling your property short or putting an offer in on a short sale, please understand that you must be patient!

You can start the short sale process anytime you receive an offer on your home once it is listed…even if you have already had a sheriff sale on your home!

For more detailed information on short sales, visit the links from the National Association of Realtors below:

http://www.realtor.org/rmosales_and_marketing/handoutsforcustomers/handouts/shortsales_sellers

http://www.realtor.org/rmosales_and_marketing/handoutsforcustomers/handouts/short+sales+tips+for+buyers

You can also call me at 952-334-2112 or send me an email at stacyzachman@edinarealty.com.  I have an office here in St. Michael and would love to sit down with you to talk about your specific information.

Stacy Zachman, REALTOR, CDPE

Edina Realty

952-334-2112

stacyzachman@edinarealty.com