Short Sale Questions & Answers

What is a short sale? The sale of a property in which the lender consents to receiving a loan payoff of less than what is still owed by the Seller on the note secured by the property.

Why do lenders agree to short sales? Lenders typically agree to short sales because they can avoid spending time and money to foreclose, evict borrowers, and resell properties, adding a bad loan and REO to their portfolio, paying property taxes, insurance, maintenance, foreclosure fees, holding costs, and repairs for REO properties and risking theft and vandalism to the property, either by the borrower

What criteria is needed to submit a request to the lender for a property to be considered for a short sale? Lender(s) usually ask for a hardship letter from the Seller explaining exactly why he needs to do this, proof of hardship (job termination letter, medical bills, etc.), last 2 months of Seller's bank statements, Seller's 2 years tax returns with all schedules, Seller's last 2 paychecks, copy of payoff statements for any subordinate liens on the property,  estimated net sheet, listing agreement, and preliminary title report.

When do you open escrow on a short sale? When the buyer makes an offer that is accepted by the seller.


What is the responsibility of the escrow company during this time? Escrow will order a demand statement for the lender(s) and include the estimated seller closing statement (showing everything except for the payoff of their loan), certified copy of the escrow instructions, copy of the purchase contract and preliminary title report. The lender will want to review all terms of the transaction before even considering whether or not to participate in the short payoff.

When does the short sale process REALLY begin? Upon receipt of the written short sale approval from the lender directly to escrow stating that they will accept the short payoff and still issue a full reconveyance for their trust deed.

What does it mean to have short sale approval? Generally, a 1 to 2-page letter given by the 1st and 2nd Trust Deeds approving the sale of the property, which will result in a short payoff of the mortgage. It lists the criteria that need to be met.


What does a short sale letter typically include? The letter approves the purchase price and identifies both the Buyer and Seller by name, outlines the required minimum payoff amount, specifies the exact date on which Close of Escrow should occur and includes wiring instructions.

Is it unusual for buyers to pay some of the closing costs?  No, in these types of transactions it is not unusual for buyers to pay some of the costs that the Seller will not be allowed to pay. Buyers need to know that repairs of the property, requested from the Seller, probably will not be approved.


How is the close of escrow determined in a short sale? Final approval must be given by the lender at this point, for escrow to proceed to close. The timeframe to close after the final approval will be determined by the lender, so agents, buyers and sellers must be made aware of this fact. The buyer's  lender will also need to be aware of this fact and must be able to perform. If escrow does not close in the timeframe permitted, the approval process will need to be started all over again by sending the lender a new estimated closing statement and a request for an extension. Written instructions must then, again, be received by escrow in order to proceed with the close.


What is the Realtors role when there is more than one lender? In the case when there is more than one lender, the listing agent will need to negotiate with each of them. There are cases when the junior lien holders will have to accept a flat amount, or in some rare cases, no money at all.