Frequently Asked Questions about Short Sales

No. Commissions are paid by the lender from the sale proceeds as part of the approved settlement costs.

Job relocation is a recognized hardship. Document the relocation requirement, distance, inability to rent/sell traditionally, and submit these with your short sale package.

Similar to traditional sales: documents are signed, funds are disbursed, title transfers to the buyer, and you receive your lender's approval letter confirming debt resolution.

Yes. Condos and townhouses can be short sold, though HOA liens and approval requirements may add complexity to the process.

Incomplete documentation, multiple lienholders, lender backlog, low offers requiring negotiation, title issues, and investor approval requirements often cause delays.

Not always required, but recommended if you face deficiency judgments, tax implications, multiple liens, or complex legal issues like divorce or bankruptcy.

Possible but not recommended. Lenders require extensive documentation, negotiation expertise, and marketing that short sale agents handle. DIY attempts often fail or get denied.

Some states (like California, Arizona, Montana) have strong anti-deficiency protections for purchase money loans on primary residences. Consult a local attorney for your specific situation.

A short sale is a voluntary negotiated sale with lender approval while foreclosure is a legal forced sale. Short sales cause less credit damage and may avoid deficiency judgments.

A written explanation of your financial circumstances, why you cannot afford the mortgage, and why a short sale is necessary. Be honest and detailed but concise.

Negotiate harder, offer them a larger settlement from proceeds, seek lender mediation programs, or consider other options as the sale cannot close without their approval.

If the lender's appraisal is below the offer price, they may approve at the lower appraised value or reject the deal entirely. Buyers must then decide whether to proceed.

Yes. Document loss of rental income, vacancy periods, and inability to cover the mortgage as your financial hardship for lender consideration.

Often yes. Cash buyers have no financing contingencies, close faster, and present less risk, which lenders prefer—though financed offers can also be approved.

Submit the strongest offer or multiple offers to your lender. They'll typically choose the highest net-to-lender after all costs and fees are considered.

Typically a hardship letter, tax returns, pay stubs, bank statements, list of debts/assets, and a listing agreement with a real estate agent.

A form you sign allowing the lender to discuss your loan details with your real estate agent, attorney, or other authorized representatives throughout the short sale.

The second lienholder must also approve and typically receives a small settlement from the sale proceeds. They may negotiate but must agree or the sale cannot proceed.

A deal between unrelated parties acting in their own interests with no hidden relationships, which lenders require to prevent short sale fraud and insider dealing.

They list your property, market it, submit required paperwork to lenders, negotiate approval terms, and coordinate between all parties through closing.

Not exactly—they approve or deny. However, they may request a higher price, require seller contributions, or ask for additional terms before approving.

Yes. Every mortgage, HELOC, judgment, tax lien, and HOA lien must be satisfied or agree to accept less than owed for the sale to close.

Yes, but the HELOC lender must approve as a junior lienholder. They'll typically receive a small payoff and may agree to release the lien without pursuing the deficiency.

Short sales generally have less severe credit impact (85-160 vs 140-160+ points), shorter waiting periods for new loans, and may avoid deficiency judgments that foreclosures often leave.

Both borrowers typically must agree and sign the short sale documents. Without cooperation, you may need mediation, legal action, or to pursue other alternatives.

Not necessarily. Some lenders will review short sales for homeowners who are current on payments if they can document financial hardship.

Yes. Request detailed denial reasons, address deficiencies, gather additional documentation, and resubmit. Consider escalating to a supervisor or executive office if needed.

Disclose all known issues. Lenders may approve short sales on distressed properties as-is, but severe issues can reduce buyer interest and approved sale prices.

You need financial hardship, owe more than the home's value, cannot afford the mortgage, and must demonstrate inability to sell traditionally or refinance.

Short refinances (principal reduction programs) are rare now. They require lender agreement to forgive principal and refinance, which few lenders offer anymore.

Yes, if the deficiency is forgiven. The lender reports it to the IRS, and you may owe taxes unless you qualify for an exclusion or are insolvent.

Possibly. Security clearances review financial issues for vulnerability to coercion. However, documented hardship handled responsibly (like short sale vs. default) may be viewed favorably.

Illegal schemes including falsifying hardship, inflating expenses, flipping to related parties below market, dual contracts, or concealing seller credits—all subject to civil and criminal penalties.

Unlikely. Even expedited short sales typically take 60-90 days minimum because lenders need time to review financials, order appraisals, and approve terms.

Short sales are typically sold as-is. Lenders rarely approve repair credits or concessions, though buyers can request and lenders may occasionally agree to minor items.

Not required, but legal or tax professionals can advise on your specific situation.

Not unless they check your credit (rare except for certain positions). Short sales are private financial matters not reported to employers automatically.

Yes, if you inherited the mortgage debt. Document the situation clearly for the lender and provide death certificates and estate/probate documentation as needed.

Not typically. Most short sales close with the seller moving out by the closing date or shortly after, similar to traditional sales.

Yes. Most short sales are listed while occupied. Keep the home clean and accessible for showings, which is actually easier when you're maintaining it daily.

Yes. Service members have special protections under SCRA and may qualify for VA short sale programs with favorable terms and potential relocation assistance.

Similar to short sale but you transfer the deed directly to the lender without marketing the property. May have similar credit impact but is faster if the lender accepts it.

HOA liens must be paid at closing, either from proceeds or negotiated with the HOA. Some will settle for less, but others may block the sale if not satisfied.

Many agents include negotiation services, but hiring a specialist can help with complex situations involving multiple lenders or difficult approval processes.

Recourse states allow lenders to pursue deficiency judgments after short sale; non-recourse states generally prohibit this for purchase money mortgages (varies by state and situation).

IRS liens can sometimes be discharged in short sales under certain circumstances. You'll need to work with a tax professional and potentially apply for IRS lien subordination or release.

Until closing, which could be 3-6 months from listing. Some lenders offer 'cash for keys' relocation assistance to vacate quickly after closing.

Check with your lender—many prohibit rentals during short sale processes, and it can complicate showings and hardship claims if you're collecting rent.

Yes. Many lenders allow short sales on second homes or investment properties.

The difference between what you owe on the mortgage and what the property sells for in a short sale. Some lenders forgive it; others may pursue collection.

Generally no. Lenders require documented financial hardship and proof that you cannot afford the property or sell it for enough to pay off the loan.

Yes. Both spouses typically must consent if both are on the loan. Courts often view short sales favorably when neither party can afford the home.

Highly recommended. Short sale agents understand lender requirements, negotiation tactics, and documentation needs that differ significantly from traditional sales.

Typically 3–6 months from start to finish, depending on the lender and buyer.

Yes. This should be negotiated upfront in the short sale approval letter. Many lenders agree to full forgiveness to avoid foreclosure costs.

The listing will be public, so neighbors who follow real estate may notice. However, the short sale designation isn't always obvious, and your reasons remain private.

Submit it to the lender for consideration. While you can provide input, the lender makes the final decision based on their BPO/appraisal and net recovery calculations.

Yes, if it has a traditional mortgage. The process is similar though fewer buyers and lenders deal with manufactured homes, potentially lengthening the timeline.

Home insurance for a future purchase should be unaffected. Car insurance companies that use credit-based insurance scores may charge slightly higher rates temporarily.

No. A short sale is only possible when you owe more than the home is worth (underwater/negative equity) and cannot afford to cover the difference.

Yes. FHA, VA, and conventional loans have waiting periods, usually 2–4 years.

Usually yes. While your credit is impacted, many landlords accept short sale explanations if you have stable income, references, and possibly a larger security deposit.

It depends on your agreement. Many lenders issue full forgiveness, but some may require a promissory note for part of the deficiency or pursue a judgment.

Once the lender approves the short sale, foreclosure proceedings are typically suspended. After closing, the foreclosure is permanently cancelled and should not appear on your credit.

Your agent submits a complete short sale package to the lender, who reviews it, may order an appraisal, and either approves, denies, or requests modifications.

Generally prohibited by lenders to prevent fraud. Attempting to repurchase through third parties or family can result in loan fraud charges and reversal of the approval.

In many cases, lenders forgive the remaining balance. Terms vary by lender, and this is confirmed early in the process.

Your ability to co-sign depends on your credit score and debt-to-income ratio post-short sale. Many lenders won't accept co-signers with recent major derogatory marks.

FHA allows purchases after 3 years (1 year with extenuating circumstances), VA after 2 years, and conventional loans typically after 4 years with good credit.

Job loss, reduced income, medical expenses, divorce, death of a spouse, job relocation, or unaffordable mortgage payments typically qualify as legitimate hardships.

Up to seven years, though its negative impact diminishes over time. Many people can qualify for new mortgages after 2-4 years with good credit behavior.

Yes. It appears as 'settled for less than owed' or similar. Be prepared to explain the circumstances and show current financial stability and income.

Typically 85-160 points, compared to 140-160+ for foreclosure. Impact varies based on your starting score and overall credit history.

Yes, but much less than a foreclosure. Many homeowners rebuild credit within 1–2 years.

Typically every 30-60 days during the approval process. Lenders want current information to ensure your hardship still exists and circumstances haven't improved.

Pay all remaining bills on time, keep credit card balances low, avoid new negative marks, consider a secured credit card, and be patient as time heals credit scores.

Generally 2 years from the short sale, though VA is often more lenient than other loan programs for veterans with documented hardship.

If you can afford modified payments and want to keep the home, yes. Short sales are better when you need to move, can't afford any payment, or owe far more than market value.

Yes. VA borrowers can pursue short sales, and VA may even pay up to $1,500 in seller closing costs through their Compromise Sale program.

Yes. FHA offers the Home Affordable Foreclosure Alternatives (HAFA) program specifically designed to facilitate short sales for distressed borrowers.

Negotiate this carefully. You may need to agree to repay part of the deficiency over time, though you can often negotiate reduced amounts or better terms.

Usually 4 years for Fannie Mae/Freddie Mac loans, though some lenders may have more flexible policies depending on credit and circumstances.

We'll review the reason, make any needed adjustments, and resubmit when possible.

Typically 3 years from the short sale completion date, or as little as 12 months if you can document extenuating circumstances beyond your control.

No guarantee. Lenders evaluate your hardship, property value, offer price, and their potential loss versus foreclosure costs before deciding.

Depends on your state laws and loan type. Some states prohibit deficiency judgments on primary residence purchase loans, while refinances and seconds may be different.

Yes, if contingencies haven't been waived. Long approval times test buyer patience, so experienced short sale buyers and clear communication help reduce fallout risk.

Rejection rates vary, but common reasons include insufficient hardship documentation, offers too far below market value, or incomplete paperwork. Many can be resubmitted successfully.

Short sales are typically cheaper and faster than foreclosure, result in better property condition, and avoid negative publicity and regulatory scrutiny associated with foreclosures.

Yes. Most homeowners remain in the property throughout the process, though you'll need to keep it clean and accessible for showings.

Yes. You're responsible for all expenses until closing including mortgage (if possible), utilities, HOA fees, insurance, and taxes to protect the property.

The complete process usually takes 3-6 months, though some can close in 60-90 days while others may take up to a year depending on lender responsiveness.

The estate executor or administrator can typically continue the process. Lenders usually work with heirs/estates to complete short sales rather than foreclose.

List the property, receive an offer, submit short sale package to lender, negotiate approval, complete any requirements, and close the sale.

Notify your lender immediately. Significant improvement might jeopardize approval, while worsening conditions might strengthen your case or require updated documentation.

Generally yes, but exclusions exist for principal residence forgiveness (under certain conditions) and if you can prove insolvency at the time of forgiveness.

Must be disclosed to lender and they typically reject related-party transactions to prevent fraud. Some approve with strict oversight and market-price requirements.

Possibly. Forgiven debt may be taxable income unless you qualify for exclusions like insolvency or the Mortgage Forgiveness Debt Relief Act (check current status).