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Short Sale - Qualification Requirements and Tips For a Successful Transaction

Short sale is a term used by mortgage lenders who agree to accept a discounted payoff on mortgage loans. A short sale agreement is sometimes offered to homeowners who have defaulted on their mortgage and facing foreclosure. This type of real estate transaction allows the borrower to sell their home for less than is owed on their note and walk away from the property without causing extensive damage to their credit history.

Not all lenders accept short sale offers and those that do generally have their own set of procedures. Typically, this option is only offered after all other options to save the home have been exhausted. Additionally, the borrower must meet certain eligibility requirements to qualify for a short sale.

These include:

1) The borrower must be able to show proof through comparable home sales that their home is currently worth less than the unpaid balance.

2) The mortgage is in default or near default. In the past, homeowners had to be in default by three or more months to qualify for a short sale. Today, some lenders are allowing homeowners this option if the borrower is in distress and heading toward foreclosure.

3) The homeowner must prove they are in financial distress. This is accomplished by submitting a short sale hardship letter which explains why the homeowner can no longer make their mortgage payments. Hardships include life-changing events such as extended unemployment, chronic or emergency health problems, bankruptcy, death and divorce.

4) The homeowner has no assets they can draw from to maintain mortgage payments.

There are two types of short sale agreements -- 'deficiency judgment' and 'payment in full without pursuit of any deficiency judgment'. The first requires the homeowner to pay the difference between the short sale and original amount. For instance, if the mortgage note balance is $150,000 and the short sale price is $125,000, the seller would be responsible for paying the remaining $25,000 to the lender.

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