Top 5 Short Sale Questions Answered

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Having helped more than a boatload of agents and homeowners with their short sales, I can attest to the fact that most folks (buyers, sellers, and agents) have the very same questions and concerns about the short sale process.

It’s probably a given that short sale sellers should educate themselves on the short sale process before signing on the dotted line. This might mean consulting with an accountant, an attorney or a handful of agents; it all depends upon the seller’s comfort level. For agents listing short sales, you definitely want to be on top of your game and be able to quickly and efficiently provide answers to these common questions. For buyers purchasing these properties, you will also want to fully understand the short sale process—since this may help you to identify which properties make the best short sale purchases.

Here’s my top 5 list of questions that people ask about short sales. It isn’t as funny as any of Letterman’s lists (in fact, it isn’t funny at all), but it may be more informative:

  1. How will a short sale affect my credit? Depending upon how the short sale is negotiated and the agreement made at the bank, it is possible that the short sale could have only a small impact on your credit score. However, missed mortgage payments (if there are any) will definitely have a negative impact on your credit.
  2. What are the tax consequences of a short sale? You should always check with your accountant regarding the possible tax consequences of a short sale. President Bush did sign into law the Mortgage Debt Relief Act of 2007, which does have positive tax consequences for those who participate in the short sale of an owner-occupied property.
  3. Why is a short sale better than a foreclosure? When you participate in a short sale, you will avoid the foreclosure ‘ding’ on your credit report. Additionally, the FHA has stated that those who participate in a short sale can purchase in as little as two years, whereas those who have lost their home to foreclosure will likely be unable to purchase for 5-7 years. Consult an attorney and/or an accountant to help decide what option is best for you.
  4. Can I participate in a short sale if I have no late mortgage payments? The simple answer is ‘yes.’ If you have a verifiable hardship, then you can participate in a short sale.
  5. My foreclosure date is 2 weeks away. Can I still participate in a short sale? Some lenders will postpone a foreclosure date if they have a complete short sale package from the seller and the seller’s agent. This package must include a purchase contract as well as important financial information. Without these items, lenders will not postpone a foreclosure date.

Agents and buyers, it is advisable to assure that the seller has weighed all of the options and made an informed decision with regard to listing the property for short sale. Nobody wants to work on marketing a property for sale and negotiating a short sale—only to have the seller decide to attempt a loan modification or let the property go to foreclosure. So, try to identify sellers who are vacillating between a short sale and a loan modification and work with those who are ready to embrace the short sale transaction. Just last week, the February national unemployment rates were noted to be 8.9%. So, I’d imagine that there are a whole lot of people that may want to participate in a short sale right now.

Just sayin’

Photo: flickr creative commons by clevercupcakes

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.


  1. Thank you for the information. I’m hoping that Sellers, homebuyers and real estate agents should know and understand some of the short sale processing and not negotiate others just for a short sales. Maybe try looking on the real estate properties and loan modification.

  2. “Depending upon how the short sale is negotiated and the agreement made at the bank, it is possible that the short sale could have only a small impact on your credit score.”

    Could you give more detail on the negotiations and agreement? The consensus (maybe not among realtors) is that short sales are just as hurtful or only a little less hurtful to credit as foreclosures are.

    “Additionally, the FHA has stated that those who participate in a short sale can purchase in as little as two years”

    Interesting. Could you please state your source?

  3. Good post, Melissa. As someone who also negotiates short sales for a living, however, I would have to disagree with your above examples regarding the effect on one’s credit. Except in very limited circumstances, a short sale is no better for your credit than a foreclosure. Excluding the very few who are able to consummate a short sale without ever falling behind in their mortgage payments, short sales and foreclosures have the exact same effect on your credit. In fact, the Fair Isaac Corporation (FICO), the company which created the FICO score formula, treats a foreclosure, short sale or deed in lieu of foreclosure exactly the same. They are all treated as “serious delinquencies’ on your credit report. The only determinative factor on your credit score is how delinquent you are in your payments during the months leading up to the derogatory event. Furthermore, it is important to distinguish the effect on your credit from your ability to buy a home following a foreclosure or a short sale. When applying for a loan, it matters not to a lender why you failed to make your mortgage payments, only that you did. Lenders go to great lengths to alert each other, by way of reporting to credit bureaus, that the defaulting homeowner is someone who could not make their payment obligations. As you correctly pointed out, the mere existence of a short sale or foreclosure on your credit report will preclude you from receiving another mortgage loan for at least two to five years, respectively. Keep up the good work. I enjoy reading your blog.

    Andrew Coppo
    Greater Boston Short Sales, LLC

  4. I get these same questions all the time. Especially numbers 1 & 3. Don’t get asked about short sales with no delinquency as often as you might hope. Usually, if someone in this market is considering a short sale its last minute often just before foreclosure date. Seems like things are turning around so hope this gets better in 2012.

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