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What is a Short Sale?

A short sale is a home sale in which the home is financially distressed. The mortgage owed exceeds the market value of the home and we say that the home is “underwater” or “upside down.” A short sale is NOT a foreclosure.Image

How does this happen?

First, a home is purchased in a high market, and especially when the home is purchased with a large percentage of the value being mortgaged. Imagine a $500,000 mortgage on a home you’ve purchased for $525,000.

Second, the home’s value drops below the mortgage value. Imagine the $525,000 home’s value dropping to $450,000 – certainly not unheard of in the past 8 years. Now the owner owes $500,000 but can’t sell the property for more than $450,000.

What can you do?

You really have 3 choices:

  1. Sell at market value and accept the loss. bring a check to the closing. Protect your credit.
  2. Stay in the home and wait for the market to improve.
  3. Sell short. Lender accepts a lower pay off amount as payment in full. Affects your credit rating far less than a foreclosure. Forgiven debt may be considered income.

How do you get a Short Sale approved?

For a short sale to be approved, these four conditions must be true:

  1. Your mortgage must exceed value of home.
  2. You must have had a “hardship” since the purchase of the home – loss of job, business failure, divorce, death, etc.
  3. You must have a monthly shortcome  of income to repay the mortgage.
  4. You must be facing insolvency – the inability to repay the loan from other assets.

Is it really “Short?”

No, not usually. When a buyer makes an offer on an underwater home, not only does the homeowner have the option to negotiate, but so does the mortgage lender. This may take some time.

What do you do next?

If you’re thinking of a short sale, you should contact your lender. You also will need a real estate agent to maneuver through the stages of a short sale.


For more information, please go to and select the video named “Short Sale Option.” If there is anything Team Zuhl can do to help you with the sale of your home, please don’t hesitate to call us!

What is a Short Sale?

What Is A Short Sale – A short sale is when a homeowner sells their home at a price that is below the mortgage on the home. For example, if homeowners owe $200,000 on their existing mortgage but the property’s market value is only $180,000, the sale would be a short sale. The sale can only occur if the lender approves the sale.

Why are there so many short sales now? The average homeowner stays in their home about seven years. Usually, seven years is enough time, especially in vibrant New Jersey, for homes to appreciate in value and usually, after seven years, the market value has increased. For example, a house purchased in 1995 for $250,000 may have sold in 2001 for $375,000, resulting in profit for the homeowner as well as a paid off mortgage. 2011 is a unique year in that housing prices aren’t as high as they were in 2005, and, in most markets, are actually lower. Therefore, a home purchased in 2005 for $250,000 may only be worth $180,000 now.  If the homeowner owes more than the home will sell for, the sale is a short sale.

Short sales are much more common in 2011 because home prices dropped quickly and left many homeowners owing more than the home was worth.

How is a short sale different from a foreclosure? A foreclosure results when the lender demands payment for outstanding debt and the homeowner can’t pay the debt. The lender then has the right to file for foreclosure, which deeds the home to the lender.

After a short sale, the seller’s credit report will show that the mortgage debt was settled for less than full, but the balance of the mortgage is $0. The seller’s FICO credit score is affected by about 50 points.  Late payments, on the other hand, affect your credit score by about 30 points per month. (Source:

Typically, sellers who sold short do not need to report this to future mortgage lenders. After a short sale, you may be eligible for a Fanny Mae loan on a primary residence or investment property after only two years.

After a foreclosure, the seller’s credit report will show that the home was sold in foreclosure and that the balance of the mortgage is whatever amount the sale did not net. It is also important to note that foreclosed properties usually sell for about 60% of current market value, according to a May, 2011 report. (Source:

After a foreclosure, the seller’s FICO credit score is lowered by at least 300 points and stays on his or her record for 10 years. (

In almost all instances, a short sale is a better option than a foreclosure.

Applying for a Short Sale – In order to qualify for a short sale, the homeowner must first write a hardship letter explaining why he or she can no longer handle the debt. The lender will require specific details as to why the mortgage is now a hardship, and a smart homeowner will include all relevant reasons.

Some of the major reasons why hardship is usually granted are:

Lenders are also more likely to approve a short sale if the borrower has paid their mortgage on time consistently. Hardship letters should also be brief and to the point. The explanation for the hardship should be specific but not technical. Writing with feeling and emotion may help to persuade the lender to grant hardship. It is also a good idea to include copies of bank statements, tax returns, and any other documentation that may support your claim.

Short sales are unlikely to be approved for these reasons:

It’s not a bad idea to use a sample hardship letter to give you ideas. A good one can be found at

This post is part of an eBook on selling your home that can be obtained for free by emailing

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