A number of myths have hurt the reputation of short sales. There is a common misconception that a short sale seller is unable to sell his house due to the inability to pay a Realtor.

You can short sell your home and it costs you zero out of pocket. How is that possible? Your bank will pay the Realtor for you. Here is how it works. A seller puts their home up for sale as a short sale. The Realtor markets the home to buyers. A price is agreed upon between the seller and buyer.

The price is what the Realtor determines would be acceptable to the mortgage company. The mortgage company would rather sell a house as a short sale instead of after foreclosure or bankruptcy. They agree to pay all the selling costs and the Realtor's commission.  The seller benefits from salvaging their credit and walking away from the debt. The bottom line is that you can short sell your home whether or not you can pay for a Realtor.

Yes, there is absolutely nothing stopping you from selling your home even if it requires repairs. Some Realtors will make an issue out of leaking pipes or other problems. The truth is that the short sale lender doesn't make a big deal because they know that they have to sell the home. They will either sell it as a short sale, or after a foreclosure. One way or another it is selling.

Just because you can sell your home when it requires repairs doesn’t mean that you will get a fair price for it. Some buyers will buy the home and plan on making the repairs themselves. Others don't want to mess with the hassle of making repairs. This makes the pool of potential buyers smaller compared to a home in good condition. This will be reflected in the price of the home.

Once the Realtor knows the repairs will have to be made by the people who end up buying the house, they will prepare the short sale lender and all the other parties for the lower price. If your home needs repairs, then don’t think that this will cause  your lender to deny any short sale offer. Above everything else, the bank only cares about receiving a fair market value when the home sells. They know that they must factor any necessary repairs to determine what is a fair market value. 

A short sale is a good way to stop worrying about the paying a mortgage you can no longer afford because of a financial hardship. Before you begin with a short sale you might want to understand the how the process works, the legal requirements, and how much it will cost you to short sell.

The simple and plain answer to this is that a short sale shouldn’t cost you anything. If it does, then it should be very little. In most cases, there are no costs or fees required for a short sale. Most of the costs associated with the procedure of a short sale include the Realtors, title costs, transfer taxes, and attorney fees. Your lender should understand that you can't afford to pay for these costs.

That is why most lenders will pay any costs involved in the sale on your behalf. You might be wondering why your lender would be willing to pay all the expenses. Here is why. If the reason for your short sale is that you can no longer afford the mortgage payments, then this means that your lender is already preparing to start foreclosure proceedings. They know that they will have to sell your home after a potential foreclosure. Because of this, lenders encourage short sales. They want to avoid a foreclosure if possible.

A foreclosure is very expensive for the lender. They have to pay all the foreclosure costs, including legal fees, taxes, insurance payments , court costs, etc. They have to pay to maintain a vacant foreclosed home, pay a Realtor to sell the house, and then sell it for below market value. They view a short sale as a less expensive alternative. This is why they are willing to pay all of the costs associated with a short sale.

Short sales are confusing. Many people do not understand the necessary steps to successfully short sell a home. The first priority is to find an agent with prior short sale experience. The more experience the better. They will know the necessary steps to help you short sale.

Unfortunately, many agents do not have much short sale experience. If you want to successfully short sale your home, then avoid hiring an agent who is not experienced with short sales.

Another mistake to avoid is deeding your home to a buyer. Some potential buyers will ask you to deed your house to them. The problem is that you give up all your rights and lose control over what happens with your loan.

Some buyers will rent your home out, pocket the rent, and let your home go into foreclosure. The sale would be legally enforceable and you, the home owner, would have to go to court if you want to cancel the sale. Only deed your home as part of a legitimate sale after the short sale has been approved by your lender.

Another mistake some sellers make is to allow a buyer to negotiate the short sale directly with their mortgage company. The buyer has complete control of the negotiation and may attempt to negotiate a very low price with your lender. This could go on for a long time and the buyer may back out at the last minute leaving you with no option to avoid foreclosure. In addition, you have no control over what information the buyer may provide to your lender.

They may give them information that would complicate any future dealings. It is best to avoid these mistakes up front when you are starting the process. That way you have the best chance at a successful short sale. 

A hardship is definitely an adversity. Anything that affects you in a negative way is considered to be a hardship. The only thing is that these hardships have to be explained to your bank. Your hardships have to be explained to the bank in a Hardship Letter. As the name suggests, you have to highlight and explain your hardship matters to the bank in this letter.

In some cases, you might also have to attach some documents which will act as proves for the hardships. If your hardship is not considered to be legitimate by the bank, then there are possibilities that the bank will decline your short sale request. The hardships which are considered legitimate by the lenders can vary according to different situations. In all situations you can never be sure of the opinion of the bank about the hardships you have stated.

In most cases, a legitimate hardship should be of monetary importance. This should show that you are having financial problems that make it hard to pay mortgage payments regularly. The Hardship Letter that you write to the bank should very logically explain why your circumstances have changed and caused you to be unable to pay the loan. Your bank might usually define a hardship as a situation which gets difficult for you to endure. There is a long list of hardships which can very easily be considered as legitimate by the lenders.

Some of these hardships include the following situations:

• Loss of job which you had held previously at the time when the loan was issued to you.
• A great decline in your income from a job or another source.
  

A borrower losing a tenant

• There has been an unaffordable adjustment in the mortgage payments.
• Unforeseen and unexpected increase in your living expenses.
• Someone in the family getting seriously ill or injured.
• Illness or injury to someone even in the extended family, where it requires you to relocate.
  
• Job relocation when your home is upside down and you have no equity.

Lenders are misunderstood when it comes to a short sale. Some people think that lenders prefer a foreclosure over a short sale. This is not true at all. Lenders actually lose out when they foreclose on a house. Remember, your lender prefers the option that will net them the most money possible.

They prefer a win-win situation a short sale offers. The lender knows that they are losing money and expect to suffer a lost. They just want to minimize that loss as much as possible. A recent study showed that a short sale reduces a lender's losses by 20 percent. In my experience with short sales, that number has been much larger.

A seller’s job is to be friendly and open with the lender so that the lender is more comfortable with the option of allowing a short sale. Sellers should be prepared to write a good hardship letter, and provide the lender with all the important documents so that the lender understands the seller’s situation. That way the lender may even help the seller throughout the procedure by looking for an agent that could help him, etc. The seller is not required to argue with the lender or be hostile. Sellers should keep their egos aside when dealing with lenders. An aggressive and hostile approach is not needed.

Are you thinking about short selling your home? Here is a way that any seller can help with the short sale. First off, the biggest problem is that there is very little accountability in the short sale industry. The banks use appraisers and other people to tell them what a house is worth before they sell it. They will not approve a short sale offer unless the house is selling for close to what these people tell them it is worth.

The bank's use this process to make sure that they are not selling homes for less than they could sell them for after a foreclosure. Here is why there is very little accountability. Very few people ever look at the valuations turned into the bank. The Realtor helping you with your short sale can't access this information. The valuations often have glaring inaccuracies in them.

For example, one property was valued at 375k. Because of that valuation, a short sale offer for 275k was turned down. We can agree that it would be irresponsible for a lender to accept 275k for a house worth 375k. However, the house wasn't worth 375k. It had been on the open market for several months and that was the highest offer received from any home buyer. But it gets worse.

The home ended up selling as a short sale for $235,000. Yes, that bank lost $40,000. But why did it happen? Because someone gave the bank an inaccurate property value. However, that person was never held accountable for their actions. They caused a bank to lose $40,000. But today they are still doing property valuations for banks. 

Be careful who you take short sale advice from. Unfortunately, not everyone knows and understands short sales. Here is an example of the myths propagated by people who think they know and understand short sales. I received an email from another agent recently.

This agent thought that a Federal Law had outlawed deficiencies on short sales. This agent mistakenly thought that the Mortgage Forgiveness Debt Relief Act of 2007 made it so that anyone could short sale their house and the debt would automatically be forgiven. This agent had sold over 50 short sales and was experienced on short sales. She assumed that since the short sale lenders had not mentioned a deficiency in the short sale approval letter that meant there was no deficiency.

This agent was located in Oregon. However, according to this Oregon Attorney's Website, she was mistaken. Any of her 50 short sale customers could be at risk of a deficiency, even though their agent had told them that the loan had been forgiven. Don't make any assumptions when deciding on how to handle your short sale. Double check everything you hear and make sure it is correct.

I am having a problem on a short sale and would like to know how to avoid it next time. The first mortgage gave me a price and a net they would allow. The home sold for enough money to get them the price and their minimum net they said they had to have. We put together the closing statement with the first receiving what they wanted and the second mortgage receiving $9,600.

The second had asked for $15,000 and are saying that they won't accept less than that. Any suggestions on this one? What would have been a better approach? Maybe offer the 2nd a smaller amount to start? I used the same HUD to present to both, getting the firsts approval first. Please advise. Bonnie.

Hey, Bonnie. Here is what I would do to avoid this in the future. Put together two separate closing statements, one for each MTG company. The first mortgage would see a proposed closing statement with $20,000 going to the second mortgage. Meanwhile the second mortgage would get a proposed closing statement with them receiving $3,000 and the rest going to the first mortgage.

Obviously they are going to get the same HUD at closing. But you start negotiations with each mortgage company thinking that the other mortgage company is getting a huge sum. You meet in the with the final closing statement. They will both be happy because they are getting more than they had originally expected. Now what can you do now to close this short sale?

This second mortgage negotiator is being a little unreasonable. Most second mortgages only receive $3,000 normally. They should be more than happy receiving $9,600. Remind them that they get zero in a foreclosure. Show them the docket status for the foreclosure case. If the house is close to foreclosure, then you gain more negotiating power. Another thing to do is get both of the negotiators on the phone. Have them hash it out between each other. That worked for us on a deal before and it might work for you too.  

I made an offer to buy a short sale about 4 months ago. I have heard nothing except that they are going to re-submit the short sale paperwork to the lender. I am very frustrated. Is there anything I can do on my end to try to push the process along, or is it all up to the agent? Please help! Brad.

Hey there, Brad. It is up to the agent. When you say they are going to re-submit the paperwork it makes me think that something is very wrong. It take 90 days max to get a yes or no answer on a short sale offer. Someone hasn't been following up with the lender. I have found that if you don't call the lender, then nothing happens with the short sale file.

They agent has to "push" the file along. The bank won't "push" it as they have more files than they can handle. Bottom Line: I would find another house. Even if you wait it out, you should always be on the lookout for another home to buy. Maybe one where the agent has experience with short sales.