Short sale meaning
A short sale happens when your home sells for less than the balance on your mortgage and the lender agrees to accept the smaller amount. The sale is "short" of what you owe. The lender has to approve the buyer's offer before it can close.
Who qualifies for a short sale?
Lenders usually look for two things: the home is worth less than what's owed, and you have a hardship that makes it hard to keep paying.
- Job loss or reduced income
- Divorce or death in the family
- Medical bills
- Job transfer or military orders
- A payment that's gone up
How a short sale works, step by step
- List the home with an agent experienced in short sales.
- Gather the lender's package: hardship letter, pay stubs, bank statements, tax returns.
- Accept a buyer's offer, subject to lender approval.
- Submit the offer and package to the lender.
- The lender orders a valuation and reviews, sometimes countering.
- Once approved in writing, the sale closes.
Short sale vs. foreclosure
A foreclosure takes the home through a forced sale. A short sale is a sale you control, with your agent and your buyer. Short sales are generally easier on your credit than a foreclosure, and you may be able to buy again sooner. You can also negotiate how the remaining balance is handled.
Ask about the deficiency and taxes
The difference between what you owe and what the lender accepts is called a deficiency. Ask the lender to waive it in writing as part of the approval. Forgiven debt may be treated as taxable income and reported on a Form 1099-C, so talk with a tax professional before you close.
How long does a short sale take?
Short sales take longer than regular sales because the lender has to review and approve. Several weeks to a few months is common. A complete, well-organized package and steady follow-up make the biggest difference.
Why your short sale agent matters
The agent is the one dealing with the bank. Travis puts together the package, follows up with the lender until there's an answer, and keeps the buyer in the deal while the lender reviews. As an investor with a network of investors, he can also bring cash buyers who are comfortable waiting on lender approval, which helps a short sale close.
Frequently asked questions
What is a short sale in real estate?+
It's a sale where the home sells for less than the mortgage balance and the lender agrees to accept that amount. The lender must approve the buyer's offer.
How does a short sale work?+
You list the home, accept an offer subject to lender approval, and send the lender a hardship package. Once the lender approves in writing, the sale closes.
Is a short sale better than foreclosure?+
For most homeowners, yes. It's generally easier on credit, you stay in control of the sale, and you can negotiate the remaining balance.
Will I owe money after a short sale?+
You might, unless the lender waives the deficiency. Ask for a written waiver as part of the approval.
Do I pay taxes on a short sale?+
Forgiven mortgage debt may count as taxable income. Talk with a tax professional before closing.
How long does a short sale take?+
Often several weeks to a few months, depending on the lender. A complete package speeds it up.
Who pays the agent in a short sale?+
Agent commissions are usually paid from the sale proceeds with the lender's approval, so you typically don't pay out of pocket.
Can a short sale stop a foreclosure?+
It often can if you start early. Many servicers will review a complete short sale package before moving ahead, but confirm any postponement in writing.
Talk it through with Travis
No pressure. He'll show you a cash option and a listing option side by side, so you can choose.
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This guide is general information, not legal or tax advice. Talk with an attorney or tax professional about your situation. Travis DeLoach is a licensed real estate agent in Mississippi (MS License # S62442) with Luxury Southern Realty. When we or our partners purchase a property directly, we do so as principals and disclose our license status.