A short sale happens when you owe more on your mortgage than the home is worth and you need the lender's approval to sell for less than the payoff amount. The process typically takes 6 to 12 months and requires extensive documentation. It is an alternative to foreclosure that can be less damaging to your credit.
The Short Sale Process
To pursue a short sale, you must first contact your lender and demonstrate financial hardship. The lender will require a hardship letter, proof of income and assets, tax returns, bank statements, and a listing agreement with a real estate agent. A qualified short sale agent or attorney can help you prepare this package. The lender reviews the package to determine whether they will accept a short payoff.
Once the lender approves the short sale, you can market the home and accept offers. However, the final sale price must be approved by the lender. The lender typically orders their own appraisal or broker price opinion to confirm the market value. If an offer comes in below what the lender expects, they may counter or reject it. Patience is essential throughout this process.
Timeline: 6 to 12 Months
Short sales are not fast. From initial submission to closing, expect a timeline of 6 to 12 months. The lender's review of the short sale package can take 30 to 90 days. Marketing the home and obtaining an acceptable offer takes additional time. And the lender's approval of the offer can take another 30 to 60 days. If there are multiple liens on the property (first mortgage plus a second mortgage or HELOC), the process takes even longer because both lienholders must approve.
During the short sale process, you may still receive collection calls and notices from the lender. Communicate with your lender regularly and keep a paper trail of all correspondence. While a short sale is pending, you are still responsible for property taxes, insurance, and maintenance. Plan for these ongoing costs.
A short sale is less damaging to your credit than a foreclosure, but it still has a significant impact. Consult with a credit professional and a tax advisor to understand the full implications before proceeding. Deficiency judgments (where the lender pursues you for the difference between the sale price and the loan balance) are possible in Texas and should be negotiated in the short sale agreement.
