How to Short Sale Your Home to Prevent Foreclosure

Struggling to make house payments? If you are underwater on your mortgage and unable to refinance for a more affordable house payment, you may consider a short sale. The name, “short sale” is not named for the length of time it takes to complete, but refers to selling short, or selling your home for less than you owe with your bank taking a loss on the difference.

Not everyone can or should short sell a property. First, you will need to qualify for hardship. For many people short selling a house, the catalyst is a loss of wages due to serious illness, long term change in employment, divorce, death of a mortgagee etc. In other words, you can no longer afford your mortgage payment and don’t see a long term solution.

The first step towards a successful short sale is finding a Realtor who is familiar with short sales, your lien holder, and their rules for completing a short sale. The next step is proving hardship. This requires revealing a detailed financially history including bank statements, tax returns and pay stubs, proving an inability to make regular mortgage payments.

Your Realtor will put your house on the market, and the lien holder will get a Broker’s Price Opinion from a skilled Realtor unassociated with the sale to have a third party market valuation. After an acceptable offer has been made by a buyer, the bank with either approve or deny the short sale. If approved, the sale moves into escrow and should be complete in about 30 days.

What does selling short cost you? If the property you are selling short is your second home, you may be responsible to pay taxes on the difference between the new buyer’s purchase price and your loan payoff amount. Also, your credit score will not only be negatively affected, but you will not be considered for a new home loan for a minimum of four years after the short sale is complete. However, the lien holder will pay both Realtors’ commissions and taxes associated with the sale. In some cases, the lien holder will also compensate the seller for predicted moving expenses.