“Short sales, short sales, short sales!”  “Short sale” is the new buzz word in the real estate industry. A short sale is when a homeowner sells a home for less than the amount he or she owes on the mortgage. The lender is accepting a shortage on the amount necessary to pay the mortgage in full – hence, the “short” in short sales.

There are common misconceptions about the process and how it affects the homeowner. The most common misconception I hear from clients is that if the homeowner wants to sell his or her home via a short sale, he or she can simply do it and do not need to obtain an approval from his or her mortgage lender. A short sale requires the approval of the lender because, unless the lender accepts what is less than owed on the mortgage, the lien will not be released.  If the mortgage is not released, the new owner will take ownership of a property encumbered by someone else’s debt. This presents various problems which would be better left for another discussion. These and other misconceptions continue to pervade the real estate conversation.

Seeking a short sale approval can be an overwhelming process as it requires a lot of documentation from the homeowner and certainly, a lot of patience from everyone involved. Most lenders require a hardship letter, tax returns, pay stubs, bank statements, and a financial statement. It is very important for the homeowner to provide complete documentation. Furthermore, it is vital that all documentation be submitted at one time, rather than by piecemeal because the individual documents will inevitably be misplaced. After the complete short sale request package is submitted to the lender, someone must follow up and track to whom the package is assigned to. Once the short sale package has been assigned to a short sale negotiator or loss mitigator, the homeowner (or his/her representative) must be diligent and attempt to keep in close communication with the negotiator or mitigator – the homeowner (or the representative) must remain tenacious.

It is also important to note that a short sale will negatively impact the homeowner’s credit score; however, in most instances, it is not as damaging as a foreclosure or a bankruptcy. Nevertheless, a short sale may present legal consequences and tax liabilities. Homeowners exploring the possibility of a short sale are strongly advised to seek the advice of an attorney and a tax professional.

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