What is a Short Sale?

A short sale occurs when a homeowner cannot sell their home unless the lien holder (your lender) agrees to accept a payment that is less than the amount actually owed.  In other words, the bank has to agree to accept less than the mortgage due on the home.  During the mortgage crisis from 2007-2011, there was a huge number short sales and foreclosures.  There were two main factors for this trend.  The first is home values had fallen, leaving homeowners owing more than their homes are actually worth.  The second is financial hardship, leaving homeowners in a precarious position of not being able to meet mortgage demands.  While we are not currently seeing a drop in home values, we are seeing a lot of financial hardship due to job losses associated with Covid-19. These financial hardships have left many homeowners unable to keep up with current mortgage payments.  While banks were forbidden from foreclosing on homes for much of 2020, those government mandates are ending and banks will be able to begin foreclosing homes again in the second half of 2021.

A short sale involves listing a home for sale at an amount that is below what may currently owe on the mortgage or if the sale proceeds will be less than what is required to pay off the mortgage. The listing is like any other in terms of putting it in the market place and negotiating terms with potential buyers.  The key difference from a regular home sale is the short sale process requires acceptance of a buyer’s offer by both the seller and the bank.  An initial contract is submitted to the seller.  If the seller agrees to the terms, it is then submitted to the bank.  The bank must approve the terms, and most importantly, the price.  Short sales will generally take longer to complete than a regular sale as the bank must analyze and approve the contract based on its own market analysis of the home’s worth.  Another difference is banks usually will not agree to fix items that are discovered during the buyer’s inspection.  These properties are sold “as is.” A Realtor works on the homeowner’s behalf throughout the process.

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