5 Tips for Short Sale Success

Select the Right Short Sale Agent

Borrowers should choose a real estate agent with ample experience and confidence handling short sales. 

Short sales success should not be taken lightly, and homeowners should make sure they are knowledgeable about every step before jumping into the process.

When evaluating an agent for experience, don’t accept an agent who has only taken courses in handling short sale successes. While this knowledge will certainly help, there’s no replacement for experience when dealing with these complicated transactions.  

Borrowers should interview their real estate agents to find out how many successful short sales they have closed.  This will prevent any short sale errors that could potentially lead to foreclosure down the road.  Borrowers should always work with a qualified agent to avoid wasting any time or delaying the process even further.

Know and Anticipate the Consequences of Short Sale

Many borrowers simply move on and forget about the negative consequences of the sale. However, these consequences do not instantly vanish upon completion of the sale and may resurface many months or even years later.  For example, many borrowers are forced to repay the balance between the home sale price and the debt owed on the mortgage loan.

While laws vary depending on the location of the property, many states enforce regulations that allow mortgage lenders to seek collection on the outstanding deficiency. As such, a borrower should always assess whether or not the short sale contains provisions regarding whether or not the lender is willing to waive the balance. 

This condition should be negotiated and represented within the documentation of the sale.

While avoiding a deficiency judgment, borrowers may opt to perform the short sale through the Home Affordable Foreclosure Alternatives (HAFA) program, which releases short sale borrowers from any liability for the remaining deficiency. 

Lenders carry no obligation to approve an HAFA short sale and will only do so if the transaction meets their criteria and the qualifications fixed by loan investors.

Negotiate The Short Sale Deficiency

MAany short sale lenders will choose not to release borrowers from the responsibility of repaying the debt; however, with some persistence and a well-written hardship letter, borrowers can negotiate to remove this liability through a waiver.

Lenders are willing to negotiate, often asking for a promissory note to reclaim at least a small percentage of the owed funds, either through a lump sum or as cents on the dollar. 

While many may be offended by these repayment offers, these sellers can circumvent a significant amount of debt by paying these insignificant up-front charges; while a waiver of deficiency comes with a price, this expense is minuscule compared to the deficiency.

Discuss with an Attorney

Employing a knowledgeable real estate agent is essential during a short sale, but even the most experienced agent can’t replace the value of a lawyer’s consult.  

Realtors who claim to be short-sale specialists will not be able to provide guidance regarding many of the pertinent legal issues which short sale transactions inherently involve.

For complex issues such as tax consequences following the sale, protection of borrower assets, and lender deficiency collection, borrowers will benefit tremendously from legal counseling. Unless you fully understand the details and potential consequences of the short sale contract, employ and consult an attorney before entering the short sale process.

Stay current on HOA payments

Borrowers opting for a short sale should avoid missing Homeowner’s Association payments, as delinquencies on these fees can completely derail the process; if these charges accumulate, the buyer may not be able to complete the sale, regardless of whether he or she agrees to pay the delinquent charges during closing.

Unlike a traditional home sale or foreclosure, in which the bank or seller pays any missed HOA fees to transfer the title of the property easily, lenders will attempt to collect every penny. Consequently, the lender could impede the payment of these overdue charges, interrupting the short sale.

Borrowers should ensure that their particular HOA will maintain the common ground in your home’s vicinity to preserve the home in sellable condition, rather than allowing it to fall into the disrepair which many associate with foreclosed properties.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.