Q. What is a “short sale”? 

A. A “Short Sale” is the process through which a homeowner can sell a property even though the sale would not provide enough proceeds to pay off the existing mortgage balance. This is a situation also known as being “under water” on the mortgage where the mortgage balance is higher than the market value of the house. For a short sale, the mortgage holder (lender or lenders) may be willing to accept less than the full amount they are owed which often reduces the lenders’ costs associated with the foreclosure process. Lenders’ costs include attorneys’ fees, auction fees, eviction expenses, property maintenance after foreclosure, and re-selling expenses.

With a short sale, the homeowner may benefit from preventing foreclosure and bankruptcy, gaining more control over the selling process and timeframe, and possibly take less of a hit on their credit score to qualify for a future home purchase. Short sales have historically been a tedious and frustrating process, often taking many months to resolve, but there have been recent changes in the rules which streamline the process to a 30-60 day timeframe for a lender’s decision. An extension of the Mortgage Debt Relief Act through December 31, 2013 allows the homeowner tax benefits from the debt foregiveness. New rules may allow homeowners who are “under water” to qualify for a short sale even if they are not delinquent in their mortgage payments but affected by  illness, unemployment, or death of a spouse. Some lenders are paying the homeowner an additional relocation expense to encourage a short sale rather than the foreclosure process.

Short sales remain a complicated process, but should be considered as a viable alternative with guidance from an experienced Realtor, attorney and tax advisor.