What is Mortgage Short-Sale?

With the foreclosure rates jumping across the nation, more and more homeowners are faced with quickly selling their home in order to avoid foreclosure. Yet, the housing market is so flooded in some areas that houses can sit on the market for several months, and sometimes years, before they sell.

If you are an individual looking to sell your home to avoid foreclosure, what options do you have?
Home Short Sale: A process by which you sell your home for less than you owe on it.

In recent years, the popularity of the short sale has increased due to rising loan defaults. A short sale is a process by which you can sell your home for less money than you owe on it. Although still not a common way to avoid foreclosure, the short sale can work if the mortgage company is willing and your buyer is committed.
Negotiate with Your Mortgage Lender to Work out favorable Short Sales Terms
Your mortgage company will consider several factors before approving a short sale. And, ultimately, the decision to approve the sale is completely up to them, so you and your buyer will want to be as cooperative as possible. Short sales often take longer to implement than a standard home purchase, so you’ll also need to be patient.

The mortgage lender will want to know the circumstances that caused you to fall behind on your mortgage payments and what your future financial prospects for repayment may be. They will also do their own assessment of whether it is more profitable to approve the short sale or repossess the property and put it on the market themselves. Although most mortgage companies are helpful, their goal is to make money so they can ultimately decide to proceed with foreclosure.

Don’t Drag Your Co-signer Down With You!
If you have a cosigner on your home loan, the lender will want to investigate the chances of obtaining payment from the other party and they will also look to see if you have any other properties currently in default before approving a short sale.

Pros & Cons of a Mortgage Short-Sale
Other than requesting a loan modification when becoming delinquent, a mortgage short sale is one of the most common routes for a homeowner to avoid foreclosure on their property. By doing this you will be able to avoid the terrible effects of foreclosure and make your life much less stressful as well. But there are still many people out there who do not know what this is.

This event takes place when your current mortgage holder allows you to sell your property for less than what is owed on the mortgage balance. Usually lenders will only agree to this if the homeowner is in default and at serious risk of foreclosure.

But there may be some consequences that come along with this process. Below are the common pros and cons of a short sale.


  • With this the homeowner will get rid of the debt they have acquired, and sell the property for less than what they owe.
  • Possible no effect on your credit score. That is only is the borrower did not miss any payments and if the lender reports the homeowner as “paid satisfactorily” to the credit bureaus.
  • The closing costs the borrower is supposed to pay when selling their property is typically paid by the lender.


  • May have a dramatic effect on credit rating. If your lender reports you as “settled for less than the full amount” it will have a negative impact on your score.
  • It may be much more difficult to find a buyer because of the housing crisis we are currently facing.
  • If the lender chooses to do so, they may come after the borrower for the deficiency balance by issuing them a 1099.

Before pursuing a short sale it would be very wise of you to first get in contact with a local real estate agent or lawyer who is known for their experience in this field.

Typically you do not have to pay fees for their assistance because once the process is successfully negotiated; they will be paid by your mortgage lender.