Real Estate Agent with Keller Williams Realty Atlantic Partners BK 0342677


If the proceeds from the sale of a property are insufficient to repay all of the existing liens on the property (which include not just the first mortgage but also:  home equity line of credit (commonly known as HELOC) or other form of second mortgage; delinquent property taxes; delinquent Homeowners/Condominimun Association fees; and/or mechanics liens) plus the standard sales closing costs and the seller cannot make up the difference with cash, then a short sale situation will arise. 

Before the short sale can be finalized, the lender or lenders must agree to forgive all or a portion of the shortfall amounts such a sale would create or the seller and the lender or lenders agree to a promissory note to cover the shortfall.

THE FIRST STEP is to determine whether the sale of your property will result in a "short sale" and, if so, will the lienholder(s) agree.

Lenders look for hardships when approving a short sale transaction; however, there is no standard set of rules which the lender follows.  Each situation is different and depends on the seller's individual and/or financial circumstances and the nature of the lien.

The seller does not consider, in itself, a loss of equity in the property but will consider the following as a hardship:

  • Loss of job
  • Illness
  • Death of spouse
  • Predatory lending
  • Divorce
  • Natural disasters
  • Business failure

In addition to the hardship, the lender will also take into consideration the value of the property in relation to the balance of the loan, the status of the loan (is it in or on the brink of default?) and any other available assets of the seller.  A seller does not have to be in default of the loan in order to qualify for an approved short sale but may need to prove that, if there is no action taken, default is imminent.

What does not typically qualify as a hardship is:

  • A bad purchase (overpaid for property)
  • Refinanced the property while the value was high and is now upside down
  • Decline in the value of the property


Comments (2)

Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Excellent summary of a short sale. Sellers and Realtors should always remember to get the lender to release the liability on the deficiency.

May 16, 2011 12:43 AM
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Ron and Ellen - Very good post. Many homeowners think that just because the value of their home is less than what they paid...they can sell as a short sale.

Homeowners need to realize that short sales are an option for those that are experiencing a hardship, such as the ones you have written in this post.


May 17, 2011 08:20 AM