Home > Mortgages > What Is a Short Sale?

Comments 0 Comments

The world of real estate can be confusing, and sometimes, even with careful planning, mortgage payments can be difficult to make. If you find yourself faced with options like foreclosure, bankruptcy or a short sale, it’s important to understand your choices.

A short sale is for those who do not qualify or do not want to refinance their home mortgages. In this situation the seller can accept a lower bid for the property to increase the chances of a quicker sale. This requires that the lender agree to accept a payment lower than the balance owed on the mortgage. The lender takes a loss but gets at least some (or even most) of its money and both parties avoid foreclosure.

The Process

Short sales can be a long and complicated process and require a streamlined communication line between seller and mortgage lender. Most creditors require that the borrower show that financial hardship is preventing them from making mortgage payments. Different creditors require varying conditions and documentation, so be prepared to negotiate. A good way to start is by gathering a letter of authorization to allow your agent to get information from your lender, a closing net sheet, proof of income and assets, copies of bank statements and a comparative market analysis. Once you receive an offer from a potential buyer, you must contact your lender and ask for approval for that specific offer.

If you are considering purchasing a house through short sale, you can get a great deal. But there are some special considerations that you will have to consider. For example, not all short sales are great deals — it’s a good idea to factor in the cost of any necessary repairs or of the tax ramifications before you sign on the dotted line.

Pros

The most obvious advantage of short sales is avoiding the lengthy foreclosure process and its impact on your credit score. (You can get your credit scores for free, plus a snapshot of the major factors impacting your scores on Credit.com.) You will also avoid having to pay the full balance of the loan you can no longer afford, though you may be stuck with a tax bill for the canceled debt down the road.

For buyers, the biggest advantage is the prospect of buying a property at a big discount. Short sale homes usually are in better shape than foreclosures, with more cooperative sellers.

Cons

It is first important to understand that not all lenders will agree to consider the loan balance paid or approve a short sale. Sellers should receive a solid commitment from lenders before moving forward with potential buyers. Also, even though you are avoiding a foreclosure, short sales can affect your credit scores, and you should work with the lender to figure out how the process will be reported to credit agencies.

As a buyer, short sale homes can be more complicated; it’s a good idea to consult a real estate agent or attorney to help with the deal.

If you are a struggling homeowner it’s important to look over all of your options, including a short sale. Although short sales are not necessarily pleasant transactions, they can be worth investigating if you are struggling to make mortgage payments each month or if you are looking to buy a home.

More on Mortgages and Homebuying:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team