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What is a Home Mortgage Short Sale?

HOME SHORT SALEWith the foreclosure rates jumping across the nation, more and more homeowners are faced with quickly selling their home in order to avoid foreclosure. Yet, the housing market is so flooded in some areas that houses can sit on the market for several months, and sometimes years, before they sell. If you are an individual looking to sell your home to avoid foreclosure, what options do you have?

Home Short Sale : A process by which you sell your home for less than you owe on it.

In recent years, the popularity of the short sale has increased due to rising loan defaults. A short sale is a process by which you can sell your home for less money than you owe on it. Although still not a common way to avoid foreclosure, the short sale can work if the mortgage company is willing and your buyer is committed.

Negotiate with Your Mortgage Lender to Work out favorable Short Sales Terms

Your mortgage company will consider several factors before approving a short sale. And, ultimately, the decision to approve the sale is completely up to them, so you and your buyer will want to be as cooperative as possible. Short sales often take longer to implement than a standard home purchase, so you’ll also need to be patient.

The mortgage lender will want to know the circumstances that caused you to fall behind on your mortgage payments and what your future financial prospects for repayment may be. They will also do their own assessment of whether it is more profitable to approve the short sale or repossess the property and put it on the market themselves. Although most mortgage companies are helpful, their goal is to make money so they can ultimately decide to proceed with foreclosure.

Don’t Drag Your Co-signer Down With You!

If you have a cosigner on your home loan, the lender will want to investigate the chances of obtaining payment from the other party(ies) and they will also look to see if you have any other properties currently in default before approving a short sale.

Comments (14)
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14 Existing Comments
  1. ciscogrove said:
    on August 1st at 01:52 pm

    A word or two about short sales. One, they won’t work if the loan is a VA or FHA or other government insured loan. The reason: The lender gets paid either by a foreclosure investor at the time of sale or by the Gov immediatley after the sale.

    Two, most people start the process too late into the foreclosure process. The lender, unless extremely motivated, won’t cooperate. They won’t cooperate because they know it will either sell at auction or it will be listed at market value w/a realtor and will be sold.

    Three, most real estate agent are clueless when it comes to short sales. I used to be a real estate broker dealing in foreclosures. The most common question I was asked by agents was, “How do you make any money with foreclosures?

    Pay attention to the question. Far too many can’t figure out how to make any money so they don’t tread in that arena.

    I’m not bashing real estate agents, I’m simply stating fact in the market I was in. When I switched hats and became a mortgage banker, I found something interesting.

    We called them bottom feeders but these lenders were officially dubbed sub prime lenders. They actually did not shy away from people in foreclosure.

    These types of lenders still exist. You’d be smart to make that your second step. First step is to talk with your lender and see what they are willing to do.

    Enough said. Good luck.

  2. gkr said:
    on August 5th at 02:53 pm

    Mortgage short sale happens generally before foreclosure by the lender because the homeowner is unable to pay the debts on time. Even a short sale of house without a mortgage can happen because the homeowner has a need for huge amount of money for some task ahead. Whatever is the case short sale always results in dissatisfaction when the market value in the real estate is growing.

    Before engaging in short sale it is better to consult a tax advisor. Estimate the sale price and find the difference you get after paying mortgage debts. There is a chance that the IRS will consider this difference as income and levy taxes on it.

    You can get out of this if you can prove that you are insolvent. Insolvent means that your debts are higher than your assets before the lender approved the short sale. Tax advisor will let you know if you are insolvent by the IRS standards.

  3. Robert Aldana said:
    on August 30th at 03:30 am

    I invite you to view my interview with CPA Manuel Alvarez on my television show “Let’s Talk Real Estate!” as we discuss the tax consequences of a Short Sale and Foreclosure. You can view the show online at:

    It is also available in Spanish. Best of luck!

    Robert Aldana
    REALTOR and Host of TV & Radio’s “Let’s Talk Real Estate!”

  4. Concerned Mortgage holder said:
    on September 22nd at 03:31 pm

    Concerned Mortgage holder

    I have an adjustable rate interest only loan that is due to reset next July. It is in my husbands name only. The house is in both our names. We got this house with 100% financing. We are making the payments fine. Our hope was as was most people’s 2 years ago is that the value of the house would go up and we could get better financing in the when the 2 year prepay was up. Because of the 2 year pre-pay and the value of the house stagnating, we could not refi before the prepay was up. Now we are in the position that our house is financed at 100% of value or less and might not be able to get the house refinanced. In the town we live in it is a small town and there is an abundance of houses on the market. My husband and I do not want to loose our house when the loan resets but we may have to walk away. The things we have in our favor is I am not on the loan and I have excellent credit. Wed could rent a house like ours for about 800 a month less than what we are paying. So with my credit and my income we could get a rental and not be homeless easier than we could re-finance our house. We do not have the money to pay our house down to 80% of value or even 95% of value in order to refinance when the time comes. I believe there are a lot of people who are in my position. We could pay the mortgage payment for our entire house if we could refinance it. The problem is the value of the house has probably dropped since we bought it and one cannot get financing for 100% much less more than 100% of value. I believe the market will eventually turn around and my home will be worth what I paid for it and someday even more. My husband and I just want to stay in our house and eventually pay it off. Because of the problems with the market that my not happen.

    What I propose is that the note holders extend the fixed rate term of the note for 5 years or so until the market is better and then adjust or refinance the homes to a fixed rate. They will loose the interest that they may have made if the note adjusted and the people who owe on the note keep paying there payment. However, if the people on the note just rent a home before there credit gets bad and move out and send the keys to the bank who is servicing the loan. The note holder will loose a lot of money when this happens. They still have to foreclose on the house and then they have to sell the house in a very down market. This is happening all over the United States Today.
    This scenario could all be stopped by extending the current payment arrangements until the market picks up enough for the people to refi their house or the income goes up enough to pay the adjustable after it adjusts. The note holder would earn the current interest on their money and not have to reposes the house in a market where so many homes are being repossessed and cannot be sold. This would bail out both the buyer and the note holder from a bad situation. The second note holders are the ones that will be hurt most but the first holders are not in that great of shape given how the prices are going down in some parts of the country. A piece of something is better than 100% of nothing.

    I think this is a good proposal however I have no idea how to pitch it, and whom can I pitch this idea. I would go to the banks but most of the banks that you pay your payment to only service the loans they do not own the loans. Does anybody know where I can go to spread my idea so the it will be taken under consideration? I have talked to a few people in the mortgage market industry and they think it is a good idea. Can someone help me? I can be contacted by e-mail at

    Thank you for any and all help.

  5. anony said:
    on December 26th at 07:06 pm

    Is it legal to short-sell your home to a family member?

  6. asdasd said:
    on February 23rd at 04:22 pm


  7. John said:
    on March 4th at 08:51 am

    Here is a great article on second mortgages that I would like to pass on

  8. Johanna said:
    on June 3rd at 08:35 pm

    Can someone please help me with this.

    Can I purchase a home in California that is a short sale using an FHA loan? In other words can an FHA loan get me a short sale property?
    Thank you for your help!

  9. said:
    on June 25th at 10:10 am

    I am in process of purchasing a short sale home, is there anything I should know or watch out for? Thanks

  10. JPM said:
    on July 24th at 02:32 pm

    Wait!!!! I have a FHA Loan with CitiMortgage, I have ben calling them to do a short sale because I can’t afford the house and it has been on the market since January. They finally gave me the FHA paperwork. It is stating that I need to be in default. You mean to tell me Citi is just yanking my chain and is not really going to grant me the right to short sale???? My HUD counselor has no idea what to say. HELP!!!!

  11. John said:
    on August 2nd at 06:48 pm

    Mortgage Complaints and Mortgage Reviews can be read at

  12. Christian said:
    on September 28th at 01:38 am

    Yes it is sad but it is the truth. The lender won’t agree on a short sale unless you are in default,

    I recommend that you have your short sale handled by an experienced real estate agent. Once you find your agent he will ask you to bring him all the paperwork that he might be asked by the bank, that will include an authorization to release information so that he can negotiate with the bank.

    You might want to ask the bank to send you a list of what they need in the short sale package. that way you are prepared and you can test your Real Estate agent, because if you mention ‘short sale package” and he does not know what you are talking about, then dump him.

    Work with a pro, remember time is of the essence.

    And yes it is not a good idea to sell your property in a short sale to your brother.

    A good website with lots of info on short sales is

    Good luck

  13. Alicia said:
    on May 3rd at 04:37 pm

    Will I(seller) still have to make payments while I’m waiting on the bank to approve an offer for my home?

  14. RateRunner said:
    on May 5th at 03:14 pm

    Yes. If a payment is due the bank will expect you to make it.