Short Sales 101 – Anatomy of a Short Sale

Short Sales 101 - Anatomy of a Short Sale - Part 1

More than 80 percent of distressed homeowners who go into foreclosure have never contacted their lender or a real estate professional for help.  That’s a staggering number when help and relief are available.

In this blog, part of a multi-part series, we’ll discuss the different pit stops and road blocks along the Short Sale path; who the players are, what documents are required, and we’ll give a cursory overview of how Short Sales work.  We’ll explore these concepts in more detail as we apply them to real world situations throughout the series.

An important thing to understand about Short Sales is that the process is anything but “short.”  The only thing “short” about a Short Sale is the payoff to the lender.  Whether you are a buyer or a seller, patience is your friend while the real estate professional negotiates the Short Sale with the lender.  Otherwise your hair will gray at an alarming rate.

The first thing the homeowner needs to prepare for is explaining the hardship.  Lenders do not care if you simply owe more now than the house is worth; they are looking for a valid hardship. You originally qualified for the mortgage and the lender is looking to see what has changed financially.  A decrease in the home’s value alone is not qualification for a Short Sale.  So what is? 

Examples of valid financial hardships are: Loss of Job, Reduced Income, Mandatory Job Relocation, Business Failure, Death of a Spouse or Family Member, Severe Illness, Medical Bills, Divorce or Separation Payment Increase, Mortgage Adjustment, Insurance or Tax Increase, Military Service, Damage to Property, Too Much Debt, Inheritance, and Incarceration.

While not an all-inclusive list, it’s a good start. If you’re able to prove any of these hardships, the lender will seriously look at your case.

The easiest way to understand the Short Sale process is to think about qualifying for a mortgage.  When you apply for a mortgage, the lender reviews your recent bank statements, pay stubs, tax returns, etc. to determine your ability to repay the mortgage. 

When you apply for a Short Sale, it’s like undoing a mortgage.  The lender will want to see the same documentation, along with a hardship letter, to determine your inability to repay the mortgage.  If you can do this successfully, the lender will likely approve a Short Sale.

In Anatomy of a Short Sale, Part 2, we’ll look at what makes up a Short Sale Package.

Based on The Field Guide to Short Sales. Copyright © 2010 by Tom & Gina Branch.

About Tom Branch

Tom Branch has written 597 posts in this blog.


Have you ever just met someone, but felt you like you'd known him for years? That's what most people experience with Tom. He has a knack for making folks feel right at home. After 21 years in the Air Force, loyalty and honesty are the foundation of everything Tom does. In addition to being a Texas Real Estate Broker, Tom is a Certified Distressed Property Expert (CDPE) and a Short Sales & Foreclosure Resource (SFR).

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