What can a seller expect from a short sale?

Ron Croushore

Selling a home for less than the amount the current owner owes the mortgage company is called a short sale.

For both buyers and sellers, the short sale process can be a long, taxing ordeal. However, in the end, it is typically well worth the frustration for both parties. The seller is relieved of significant debt and the buyer gets a real bargain on a new home.

What can a seller expect from a short sale?

Sellers should plan to be involved in the short sale process. Usually, avoiding foreclosure is the seller’s goal, so that they can take out another home loan in the near future. A short sale can leave a negative mark on a seller’s credit, but it usually lasts only a couple of years. In some short sale cases, banks will actually report the debt as “paid in full,” so a seller’s credit takes even less of a hit. In contrast, a foreclosure can negatively affect a person’s credit for up to 10 years.

Despite the fact that it seems like a win-win for buyers and sellers, if sellers think a short sale sounds like a great way to get out of a debt that they don’t really want to pay, they should think again. Banking institutions require proof that sellers NEED to go through the short sale process. That proof can include being upside down on a mortgage, demonstrating financial hardship and an inability to afford a current payment. Banks may even require a comparative market analysis that shows a person’s home doesn’t have a shot of selling for the amount that they owe.

If a seller is going through the short sale process but has other outstanding debts, they should be careful about declaring bankruptcy. A bankruptcy filing may diminish their ability to complete the sale if creditors are blocked from collecting mortgage payments along with other debts.

Just because a short sale goes through may not mean that a seller’s financial troubles are over. In fact, after the sale, it is possible that a bank can still come after the seller for the difference in the loan balance. Often times, sellers can add a clause to their short sale agreement that prevents banks from doing so, but it may be wise to seek the help of an experienced real estate agent or lawyer to go over the fine print.

Undoubtedly, for both buyers and sellers, the short sale process can be long and arduous. It is always a good idea for a consumer to have an experienced agent, who has dealt with numerous short sale transactions.