The Ins And Outs Of Short Sales

When you owe more than your ever-plummeting home is worth, a foreclosure or short sale — in which you sell the home for less than you owe — can seem like an attractive escape. The move may make financial sense, but it comes with repercussions to your credit and somewhat strict qualification parameters.

Bible Money Matters offers a short-sale primer. First, know that you’ll need to do a bunch of paperwork. You’ll need to convince your lender that the short sale makes sense for both of you. Expect to provide a hardship letter explaining why you need to go that route, including proof of your income and assets, and eventually a purchase agreement from a buyer.

Not everyone can qualify for a short sale. You must have some reason that qualifies your hardship, such as a divorce, a death in the family, health problems, unemployment or bankruptcy.

If you succeed with the transaction, there are consequences to consider. It will probably take you two years to be able to qualify for a Fannie Mae or Freddie Mac-backed mortgage, and your credit score could fall between 200 and 300 points.

Will A Short Sale Hurt Your Credit, And Will You Even Qualify For One? [Bible Money Matters]


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  1. dicobalt says:

    I still don’t get why people here accepted a price of a quarter million dollars for a 3 bed 2 bath cookie cutter house with virtually no yard and a 1.5 hour commute from the downtown area.

    • scoutermac says:

      Ultimately I think it comes down to the neighborhood and schools. We found our dream home in the city cheaper than in the suburbs but the neighborhood and schools are not as good.

      • dicobalt says:

        A farm community with below average schools and a primarily poor population? No it wasn’t that lol It’s because it’s south Florida which everyone brainlessly equates with rich movie star mansions in Miami. The banks allowed adjusters to price houses totally wrong. Then the banks allowed the totally wrong quarter million dollar loans to people who make $32,000/year. Now I just groan when I see all those empty houses which are still too expensive for anyone to buy. It’s a matter of real value vs perceived value.

        • NickJames says:

          South Florida real estate is just stupid. I live in a nice area but still wouldn’t pay more than 120k for some of these homes yet I still see them being listed for 200+, it’s no wonder we have so many damn empty lots here lately. Some the bank has been squatting on for years.

  2. Traveller says:

    I did a short sale in 2010. We got the offer in July and closed in October. I had done a lot of paperwork before this.

    In my case I had a job, but it had required me to move several states away. We had stopped making payments in February.

    I moved my bank account away from the bank that held the mortgage before I started missing payments.

    It did hit my credit score, but interestingly my score went up about 70 points when the short sale closed. I also did not have a tax hit because we were “insolvent” basically owe more than we have in assets.

    My credit score was primarily affected by the missed payments. If you can pull off the short sale qualification without missing payments you will see very little impact on your score IMO. My score is currently around 700, I suspect it was only a little higher than that before all this started.

    In my case I have been keeping expenses low and paying off my other debts in preparation to buy again. Renting could be a problem if your credit score is already low (

    We are still 2 years away at least from buying again, so I can’t comment on how that goes. I don’t recommend this route causally, but if you have a situation that warrants it, it is way better than a foreclosure.

    • bigeasye865 says:

      Exactly the same situation here. Unfortunately we were lead to believe that it would be 2 years before we could qualify again for a freddie/Fannie mortgage and it is actually 4 years. 2 years is only for those that file bankruptcy.
      Also I wish there were some magic way to qualify without missing payments but Chase told us they wouldn’t even look at it until we were 2 months behind the

  3. msmith6044 says:

    Having concluded a short sale just two weeks ago, I offer the following advice- (1) get a lawyer who specializes in real estate you will definitley need a navigator to help you through the process. Note also that attorney fees are normally included in the sale, so it will not necessarily come out of your pocket. (2) Be prepared for a looooong process, no matter how clear cut and deserving your case may be. Mine took six months, and everything was ‘routine”. the mortgage companies just dont have the staff to get these moving in a timely fashion.

    • pot_roast says:

      Mine took less than 3 months from “Realtor posts ad” to “Sign closing papers.” I got $1,500 back from Chase, who also had it written in the sale that they were not going to 1099 me for the deficiency. (Owed $160k, house sold for $120k.)

      It really seems to depend on the lender and the phase of the moon or something..

  4. SaltWater says:

    As a Realtor who has navigated his way through several short sales I can say that not all negotiations and transactions are the same. Some of them are fairly easy and some are not. A lot of it depends on the seller/owner of the property. If they don’t furnish the lender with all the documentation required that lender isn’t going to be cooperative. Sellers in crisis freeze up or become emotionally paralyzed.

    • LuckyLady says:

      I too am an agent–I had a client who wanted to do a short sale. The catch? She hadn’t filed taxes in several years. No way was she going to get an approval for a short sale. If the client can’t produce legit documents, or balks at anything, or can’t meet deadlines, the short sale won’t be approved and a sale won’t happen.

      • SaltWater says:

        That’s exactly one of the things I’m talking about. A broker can list Short Sales all day long but that does not necessarily mean the house will ever get close to being sold.

  5. diagoro says:

    I had a loan with EMC (now Chase) and sold my home via short sale. Thanks to EMC, the hoa being a major pain (they denied the first few offers out of principle, and ended up settling for much less)and a Realtor who was mentally on edge (numerous bouts of crying, literally).

    Thanks to a California law, I didn’t owe taxes on the sale, and I’m now clear and free. My major gripes are with EMC. Not only did they follow the regular procedure of losing paperwork, stalling, etc (when HAFA dictates quick turnaround times for processing), they also forced me to give up the $3000 relocation funds. Perhaps it was my fault for relying on my Realtor rather than an attorney, but it was impossible to hire a lawyer.

    My best advice would be to find a competent and reliable Realtor who’s actually going to work for you, rather than the mortgage company and (solely) their commission.

  6. Flower Of High Rank says:

    …and then, if you are trying to buy a house that’s a short sale? And you actually find a house you like? Know that the bank is using you and the other bidders to create a minimum price that they’ll consider and that you? You will never get that house. F short sales.

  7. RvLeshrac says:

    Don’t forget to then donate 10% of the money you don’t really have to the church! Bible Money matters! /s

  8. SoCalGNX says:

    Don’t bother trying to get one through B of A. They will put up every obstacle possible. At the last possible moment, after they have told your agent that all is well and it will wrap up soon, they will foreclose. If you should try to find out why or get them to explain, they will give you the runaround. They will tell you that they will contact you and don’t. They will refer you to people who will not and cannot help you. They will send you excuses that are not only illegal in your state but also make no sense what so ever. Don’t look for your government officials to help you sort it out either.

  9. scoutiebear says:

    Our short sale negotiation process lasted 2+ years with Bank of America and several deals that fell through. We researched it and realized the damage to our credit was the same with foreclosure-so in the end, I chose foreclosure. The bank sold the house, a week later the buyer appeared and I negotiated 5k in walking away money, and we left the house in great condition. Not a happy situation, but a good deal for the buyer, and a good deal for us. To hell with the bank. After what they put us through, I really don’t care about their end of the deal.
    To anyone going through either a foreclosure or a short sale, I recommend getting a realtor you can talk turkey with. Negotiate walking away money-which will have to be $ “for the stove” or something, because outright cash for keys isn’t possible in a short sale. Finally, set your limits. Times where it’s okay for the realtor to bring people buy, and times it isn’t. Our realtor was perhaps 75% of the reason we chose to foreclose. He was insufferable. Demand respect, demand good communication. Don’t be bullied. I wish I had known that going in. And finally-remember life is SO MUCH BETTER once you’ve cut loose the lead buoy of a house you can’t afford. Leave it in good condition for the next people-it made us feel good to do that.