The science behind the short sale

A short sale is defined as a sale of real estate property where the proceeds fall short of the mortgage debt owed. While all short sales do not necessarily forgive borrowers’ deficiencies (the amount of the unpaid balance), they are often considered more favorable than foreclosures. How a lender determines whether a borrower qualifies in the first place is explained in this video.

Understanding the process from the start is critical, says Kay Maurer, short sale manager at Wells Fargo, reports In a recent Silicon Valley Association of Realtors meeting, Maurer recommended these steps:

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  • Determine qualification for government programs (HARP, HAMP, HAFA).
  • Understand that short sales are processed on a first come, first served basis. Submit complete and legible paperwork. If the lender finds an error, the file is returned to the client, who has 72 hours to correct the mistake before losing their place in the cue.
  • Expect a minimum 60-day processing timeline.
  • Communicate openly and regularly with the lender and respond quickly to inquiries.
  • Make no assumptions.

The valuation process begins once the short sale package comes under review. The lender verifies the numbers, evaluating the borrower’s ability to pay the mortgage, the property value, and the purchaser’s offer against the total debt amount. If a short sale potentially offsets the loss incurred by a foreclosure, the lender will be more likely to approve it. Sellers who enlist the help and expertise of short sale negotiators or go it alone will need the patience and wherewithal to navigate what can feel like a muddy process.

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