How Short Sale Works

If you're struggling with mortgage payments and facing the risk of foreclosure, a short sale could be a viable alternative. A short sale allows you to sell your home for less than the remaining mortgage balance, with the lender agreeing to accept the reduced amount. This option can help homeowners avoid foreclosure, minimize credit damage, and move forward financially.

At J. Singer Law Group, we help homeowners navigate the short sale process, ensuring they understand their rights and obligations. This guide will explain how a short sale works, its benefits, and what to expect at each step.

What Is a Short Sale?

A short sale occurs when a homeowner sells their property for less than what they owe on the mortgage, with lender approval. Unlike foreclosure, which can severely impact your credit, a short sale provides a more controlled way to exit a mortgage.

• Avoids foreclosure and legal action
• Minimizes long-term credit damage
• Allows homeowners to move forward without owing the full balance

However, not all lenders approve short sales, and the process requires careful negotiation.

How Does a Short Sale Work?

Step 1: Determine if You Qualify for a Short Sale

To qualify, homeowners must:

• Have a hardship (e.g., job loss, medical expenses, divorce)
• Owe more than the home’s current market value
• Be unable to continue mortgage payments
• Not qualify for loan modification or refinancing

A lender will typically require proof of hardship before approving a short sale.

Step 2: Hire a Short Sale Attorney or Real Estate Agent

A real estate attorney or short sale specialist can help:

• Negotiate with lenders to approve the sale
• Ensure proper documentation is submitted
• Protect homeowners from legal risks

Having legal representation increases the chances of a successful short sale.

Step 3: List the Home for Sale & Find a Buyer

The property is listed at fair market value, and once an offer is received, the lender must approve it before proceeding.

Step 4: Submit a Short Sale Package to the Lender

A short sale package typically includes:

• A hardship letter explaining financial distress
• Recent bank statements and tax returns
• A purchase offer from a buyer
• A comparative market analysis (CMA) showing the home’s current value

The lender reviews the offer and decides whether to approve or reject the short sale.

Step 5: Receive Lender Approval & Close the Sale

Once approved, the closing process is similar to a traditional home sale. The lender accepts the reduced amount, and the property transfers to the new buyer.

Pros and Cons of a Short Sale

Benefits of a Short Sale

✔ Avoids Foreclosure – Less damage to your credit compared to foreclosure

✔ Potential Debt Forgiveness – Some lenders waive the remaining balance

✔ Faster Financial Recovery – You may qualify for a new mortgage sooner than after foreclosure

✔ More Control Over the Process – Unlike foreclosure, a short sale allows you to be involved in negotiations

Downsides of a Short Sale

🚩 Lender Approval Required – The lender has the final say, and approval can take weeks or months

🚩 May Owe Deficiency Balance – Some lenders require homeowners to pay the remaining balance

🚩 Credit Score Impact – Short sales lower credit scores but are less damaging than foreclosure

🚩 Tax Consequences – Forgiven debt may be considered taxable income (consult a tax professional)

📌 Tip: Homeowners should negotiate a deficiency waiver to avoid owing the remaining balance after the sale.

How Long Does a Short Sale Take?

Short sales typically take 3–6 months from listing to closing, depending on:

• The lender’s review process
• The buyer’s financing approval
• The complexity of negotiations

Some lenders move faster, while others take longer to approve offers. Working with an experienced short sale attorney can help expedite the process.

Short Sale vs. Foreclosure: Which Is Better?