Short Sale Basics for Homeowners

A short sale occurs when a bank agrees to accept a payoff that is less than the mortgage balance. For example, if a homeowner has a defaulted mortgage loan with Wells Fargo in the amount of $200,000, but the property is only worth $160,000, Wells Fargo may allow the homeowner to sell their property to a qualified buyer for the current value of the property and, in some cases, forgive the amount on the unpaid balance.

Homeowners can benefit from completing a short sale in the following ways:

Short Sale Facts and Figures

  1. Homeowners who go through foreclosure must attain a 680 credit score, make a 20% down payment, and wait five years in order to qualify for a new home loan. Homeowners who go through a short sale need only wait two years and do not have to attain a minimum credit rating or minimum down payment (Fannie Mae)
  2. Banks stand to lose as much as 30-60 percent of the outstanding loan balance on foreclosed homes (Mortgage Bankers Association)
  3. In the state of Washington, short sales outnumber the bank-owned properties nearly two to one (Better Properties Real Estate)
  4. Only one third of bank foreclosures are listed with a Realtor in the state of Texas

The Short Sale Process at the Bank

Buyers may wait a very long time to get a response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process. Buyers may get so tired of waiting for short sale approval that they may feel the need to threaten to cancel if they don't get an answer within a specified time period.

That type of attitude is self-defeating and will not speed up the short sale process. If buyers are the type with little patience, perhaps a short sale is not for them.

Following is a typical short sale process at the bank:


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