Contrary to popular belief, not every homeowner can qualify for a short sale. While a short sale can help if you are unable to make regular monthly payments on your mortgage, you must present your lender with a valid reason why you can no longer make these payments. Lenders have their own guidelines when it comes to short sales and may have other options if you are experiencing financial difficulty.

What is a Short Sale?

A short sale occurs when lenders allow homeowners to sell their homes and settle for a sum that is less than the current mortgage owed. Lenders will often take a minor loss on their investment instead of having to go through the foreclosure process. When the home is sold, homeowners will pay the lender an agreed upon fee, which is usually the current market value regardless of the total amount of the mortgage owed.

Qualifying for a Short Sale

Most lenders will agree to a short sale when or more of the following occurs:

Mortgage default - If you cannot make regular monthly payments due to a job loss, death of a spouse, or medical expenses, you can ask your lender if a short sale is possible.

Market Value Decreases - If you can prove that the current value of your home is not equivalent to what you owe on the home, your lender may agree to a short sale.

Bankruptcy - If you file for bankruptcy and have no assets including savings, stocks, and other investments, your lender may allow you to sell the home in a short sale in order to avoid foreclosure.

Keep in mind that you must submit a hardship letter to the lender for review. You will not qualify for a short sale for reasons such as:

Family expansion

Failure to maintain your personal finances

Buying another home

Neighborhood depreciation

Failure to sell your home for the price you hoped for

Once your lender has approved your reasons for asking for a short sale you can sell your home on the market and consider a short sale.

Hiring a real estate agent who handles these types of sales is a good idea as they will have a better understanding of the market and finding the right buyer. You should also hire an experienced real estate attorney who can help you avoid potential pitfalls.

Short Sale Repercussions

Even though you're able to avoid foreclosure, participating in a short sale is not without consequences.

Your credit report may include the short sale as a preforeclosure. This can hinder your attempts to buy another home, qualify for a car loan, or obtain credit cards and other credit services in the near future.

Before proceeding with a short sale, contact an experienced real estate agent and a experienced attorney who can go over your financials and determine if you are the best candidate for a short sale. Depending on debts you owe, there are other options that include reworking your mortgage or catching up with missed mortgage payments over time.

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