According to RealtyTrac, a short sale “is literally the sale of a home for less money than is currently owed the lender on the outstanding mortgage being foreclosed on. In other words the home is ‘upside down’ from a financial aspect. Therefore, the catch is that in order to successfully conduct a short sale, the foreclosing lender has to agree to it, essentially agreeing to accept less money than is owed on the loan secured by the house.”

Pros and cons of short sales

Pro: Getting the property for less than what it would cost for the owner to reinstate the mortgage can be a windfall for the buyer.
Con: Short sales can require more work on the part of the buyer who must also qualify for the transaction — and often be able to pay entirely in cash.

Did you know?
– Frankie Orlando, the author of The Pre-Foreclosure Real Estate Handbook, says that Fannie Mae and Freddie Mac will accept 85 to 90 percent of the fair market values in a short sale, and HUD will accept as low as 82 percent.
– To make a case for the short sale, the buyer needs to compile paperwork to prove to the lender that the homeowner qualifies for a short sale payoff.
– While a first mortgage will be satisfied in a short sale, buyers also need to consider any secondary liens against the property.
– Lenders will more seriously consider short sale offers that are entirely in cash, with a 30-day-or-shorter closing and no contingencies.
– The seller or property owner cannot profit from a short sale.

What goes in a short sale packet?
Since the average layperson is not familiar with the many nuances and legalities of most real estate transactions, including short sales, working with a Realtor® who specializes in this area can save prospective buyers a lot of aggravation, time and money. Whether you go it alone, or seek professional help, Frankie Orlando, author of The Pre-Foreclosure Real Estate Handbook, says you will need to present the following to a lender for any short sale:

– Cover letter
– Purchase agreement
– Low comps list
– List of repairs with quotes for bids
– Photos of problems with the house
– Seller’s hardship letter
– Net sheet (HUD-1)
– Financial information on seller (W-2s, tax returns, etc.)
– Your formal offer, with a time limit for acceptance.