Real Estate: Short Sale

A short sale occurs when a lender agrees to allow a homeowner to sell the home for less than the mortgage owed on it. The lender either absorbs the difference or requires a borrower to pay it back in a lump sum judgment or payment plan. This allows homeowners to walk away from their houses without going into foreclosure and seriously damaging their credit.

Michael Golden of the Chicago Association of Realtors answers the most frequently asked questions on how the Short Sale process really works.

1) What is a Short Sale?
When a property is sold for less than is owed by the mortgage or mortgages. Can only happen when a bank approves those transactions, which means you add a third party to the contract: buyer, seller, bank. Most SS revolve around properties where there is more than one mortgage, first and second, and most of those sales are when someone used both when they bought the house. 80-10-10 loan: 80% from first lender, 10% from second, 10$ from buyer. Most of the time, short sales are with more than one mortgage. Not enough equity in them.

2) How does it work?

Prove inability to make payments The first thing you need to do is prove to the lender that you can't make payments at the adjustable level. That will require some filing of paper work, some documentation showing that your income has gone down.

Find a willing buyer The second thing is to find a buyer who is willing to buy the home at a discount rate. To do that you have to get a knowledgeable real estate agent or attorney involved, maybe someone who specializes in short sales. That's important because pricing is incredibly important in the search to find the right buyer.

Get lender to approve sale Lastly, you need to get the lender to approve the sale once you do find a buyer. That's why it's important to work with the lender as much as possible. That's going to make it that much easier for you in the long run.

If you can't complete a short sale If the homeowner isn't able to complete a short sale, the next option is either foreclosure or handing over the deed to the bank in lieu of foreclosure. Those options are worse for your credit than a short sale - that's why it's so important to get the pricing right

3) Who qualifies for a short sale? Will a lender entertain a short sale if a homeowner isn't in foreclosure?
Yes. I think they actually prefer that, once the foreclosure process starts, it's going to be much more difficult to have a successful SS.

4) What is the time frame for a short sale approval?
It's all over the place, for a buyer may be at the closing with no signed contract. At least not signed by everybody, can go right to the closing without it signed. Buyer can end up going to the closing and not have the closing take place because the bank can decide. There's a new field that's going to be in MLSNI so that you can check off "short sale" and it will automatically put in the remarks that say that it is a short sale, and that the contract and the cooperative commission are subject to approval by third party. If you go to the closing, first place lender will look is agent, and we don't have lien rights, as an agent you could do a closing and discover that you're not getting paid.

5) What are the benefits/risks to the homeowner to do a short sale?
It gets them out of a mortgage that they can't afford, keeps the house from going into foreclosure, more difficult when you have a foreclosure on your credit. Benefit to the lender would be that they get some money, maybe not all, but some and also generally speaking if a house goes into foreclosure, person on mortgage gives up, condition of home suffers.

Chicago Association of REALTORS
200 S. Michigan Avenue # 400
Chicago, IL 60604