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What Is A Short Sale Mortgage?

What Is A Short Sale?

A short sale occurs when a homeowner decides to sell their home for less than the amount they owe the mortgage company, meaning not all of the liens or debts associated with the property have been settled. If this is the case, the seller is still responsible for the outstanding balance on those debts.

The Short Sale Mortgage Process

A short sale is not a typical means of buying or selling a home, but it does happen. Usually in this case, the seller is dealing with a financial hardship. When it comes to purchasing short sales, buyers typically don’t seek out these homes but may come across them in listings.

If you’re a pre-qualified buyer looking at listings, pay closing attention to the phrase “subject to third party approval,” which indicates that a bank of institution must approve the purchase and the property is a short sale.

What does the process look like? Here’s a brief overview:

  1. The listing is posted.
  2. The pre-approved buyer look at the home and puts in an offer.
  3. The offer goes to the bank to which the seller pays the mortgage.
  4. The bank must approve the offer, which could take anywhere from one day to 6 months.
  5. The buyer must wait for the lender’s loss mitigation department to approve the sale. If too much time passes, the property could go into foreclosure.

How Does a Short Sale Mortgage Work for Buyers?

If you’re a buyer looking for a potential bargain, a short sale may be an option worth considering. Sellers in this case typically want to get rid of the property, so they may be more likely to strike a deal. It’s important to understand, however, that buying a short sale can be a lengthy process that extends beyond the typical home sale time frame of 45 days. During that period, there is also still a chance the property can go into foreclosure.

When it comes to buyer financing, a short sale property is no different, and the mortgage loan process is the same. Be aware, however, that the seller could accept your offer but have to wait on the bank’s approval in order to close. The bank may come back and say that the home is worth more than your offer, which will delay the sale.

Also, all types of loans — FHA loans, VA loans, first time home buyer loans — can all be used to purchase short sale.

Here are some questions for buyers to consider:

  • Do you know the bank holding the loan?
  • Has the seller reached out for preliminary approval?
  • Is there an approximate timeline for the bank to approve the offer?

Good communication with your real estate agent is also key to a navigating a short sale.

Short Sale Mortgage Information for Sellers

If you’re a seller and your property will qualify as a short sale, you would accept a buyer’s officer and then send a “hardship letter” to the bank or lender indicating that you have defaulted on the mortgage and need to get out of the house. The bank may take anywhere from a few days to 6 months to approve the short sale, so it’s often a waiting game for both buyers and sellers, and patience is key.

If it takes too long for a lender’s loss mitigation department to approve the short sale, however, the property may go into foreclosure. At that point, the offer from the buyer will be terminated.

It’s important to talk to your real estate agent, the mortgage service provider and the loss mitigation department directly for more information and to discuss repayment plans. Be transparent, don’t be afraid to have those difficult conversations, and surround yourself with a good team of individuals who can help and answer your questions.

Short Sale vs. Foreclosure

A short sale is also known as a “pre-foreclosure sale.” A foreclosure refers to when the lender takes over ownership of the home.

At the end of the day, a short sale or foreclosure is not an ideal situation for anyone. It’s important to be in constant communication with your real estate agent, regardless of whether you’re looking to buy or sell, and be aware of external companies that will require money to mitigate or facilitate a short sale.

If you sold your home in a short sale, and now you’re looking to buy again, know that it’s not impossible: Here are five things you need to know if you’re buying a home after a short sale

Contact Us

If you have questions about the short sale mortgage process, contact us today and a Blue Water Mortgage loan officer will be in touch shortly.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.