What is a Short Sale?

A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. Due to the dramatic drop in prices in the Phoenix metro area, a short sale may be the best option for homeowners who have to sell and owe more than their home is worth.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from a Broker Price Opinion (BPO) or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

How much does a Short Sale cost?

Typically, the homeowner's lender pays the closing costs & real estate commissions if the short sale is approved. The short sale can only proceed if both the lender and the homeowner are in agreement. If an agreement is not reached, the short sale purchase contract is cancelled.

How does the Short Sale process work?

Please contact Todd Heilesen for more information or to start the short sale process. Todd has experience negotiating short sales and can work directly with your lender to obtain short sale approval. Typically, the lender pays the closing costs & real estate commissions if a short sale is approved. Below are the steps taken in the short sale process:

1)Submit 3rd party authorization to your lender(s), allowing Todd to speak with your lender(s) regarding your account(s).

2)Notify your lender of the short sale and submit any documentation required by the lender (many lenders do not want any documentation until you have received an offer on the property).

3)List the property for sale with Todd, subject to short sale lender approval (includes placement on MLS, REALTOR.com, other real estate websites, yard sign, color flyers, email flyer to agents, etc.)

4)Once an offer is received & accepted by the homeowner, Todd will submit a complete short sale package to the lender (typically includes homeowner's recent paystubs, financial worksheet, last 2 years tax returns, last 2 months bank statements, hardship letter, estimated settlement statement (HUD1), a copy of the listing agreement, & purchase contract)

5)Depending on the lender, the short sale approval process can take 30-90 days or more from the time the full package is submitted. During this time, Todd will follow up weekly with the lender(s) to check on the status of the short sale and to escalate when necessary. The homeowner & buyer agent will also be updated on a weekly basis.

6)Once a decision has been made the lender will notify Todd that the short sale package is approved, denied, or that the lender is submitting a counter offer, in which case negotiations with the buyer would resume, hopefully leading to a successful short sale, benefiting all parties involved.

Still have questions? Want to get started? Contact Todd at 623-271-1975.

Please note: Real estate brokers are not qualified to provide financial, legal, or tax advice regarding a short sale transaction. Homeowners who wish to list their property as a short sale are advised to obtain professional tax advice and consult independent legal counsel regarding the tax implications and advisability of entering into a short sale agreement.