How to Arrange a Short Sale

A short sale is one way to settle your mortgage debt.

A short sale is one way to settle your mortgage debt.

A short sale occurs when your mortgage lender has agreed to take less than what is owed on the property as a sale price on the home. If you can no longer afford to pay your mortgage, a short sale can help avoid foreclosure, which can lower your credit score by 200 points and stay on your record for up to seven years. A short sale is a form of loan forgiveness, and it will still affect your credit rating — just not to the extent that a foreclosure would.

Contact your mortgage lender -- typically it’s your bank. Ask to speak with someone in their loss mitigation department. Tell them you are interested in a short sale. From there, they should provide you with the necessary guidelines and paperwork to begin the process.

Obtain the paperwork for the short sale package. Make sure to include supporting documents to the bank proving that you are no longer able to financially afford the home you are now trying to sell. These documents should include tax returns, pay stubs, credit reports, medical bills and a hardship letter, which should explain in detail the financial hardship that makes it impossible for you to keep up with your loan payments.

Fill out all the information requested in the package and review the questions and your answers carefully. Even a tiny mistake or leaving a section blank can delay the short sale process.

List your home with a Realtor -- only if the bank approves the paperwork to proceed with the short sale. The listing price of the home is set by you and the listing agent.

Contact the Realtor the home is listed with and have them process the sale of the home once you have a potential buyer. After you agree to sell your home, your bank will want a copy of the offer and listing agreement.

Have your Realtor submit the short sale offer to the bank once you have found someone to purchase the home. Before giving the go ahead to proceed with the selling of the house, a bank will often appraise the home's value to justify the short sale price. If the bank believes the short sell price is too low, it can reject the offer -- especially if it believes it can make more money by foreclosing on the home.

Proceed with the transaction of the home if the bank approves the sale. If it's denied, be prepared to ask your buyer to increase his offer on the house. If the buyer is unable to do that, immediately begin looking for another buyer.


  • Know that banks are more likely to approve your short sale request if they see proof that you are going through a financial hardship, such as losing a job, a reduction in work hours or unexpected medical bills. Banks are likely to refuse your short sale request if you they believe your money problems stem from financial irresponsibility.
  • Be patient. Some times it can take banks several weeks to approve the documentation and paperwork to proceed with a short sale.

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About the Author

Renae Nicole has experience in various media markets, including Charleston and Myrtle Beach, S.C., as well as Savannah, Ga. She has been writing professionally for more than 10 years, working as a radio disc jockey, reporter/anchor for several TV stations and newspaper reporter. Nicole graduated from the University of South Carolina with a B.A. in broadcast journalism.

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