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The short sale process has always been a very frustrating and lengthy one. There used to be a time when short sales could be resolved and approved within 2 weeks.  Now, they can take anywhere from 30-180 days to complete - if indeed they ever DO reach a resolution. They should now be called "long sales".  Today, many short sales are never even reaching a negotiator's desk at the lending institution.  Many files are stuck in limbo with unwilling, understaffed and simply uninformed lenders. 

While new legislation may soon help to resolve some of these issues and alleviate some backlog, the Home Affordable Foreclosure Alternatives Program (HAFA) still has some 'kinks' before it can be considered a success.  However, if successful, it could completely change the landscape of how short sales work.  The HAFA program is not intended to assist every homeseller, and as is the case with short sales in general, not every lender participates in the HAFA program.  So, for the purpose of our immediate discussion on short sales, we will continue with the traditional method.  Our main menu will offer additional information on the HAFA program.

It is important to understand that not all sellers and not all properties will qualify for a short sale.  Yes, there is a qualification process.  It is not enough to say "Hey, I made a bad purchase, so let's just dump this home". 

First, there must be some sort of financial hardship.  Did the seller lose a job?  Did the interest rate adjust upwards, thus making the monthly mortgage payments completely unaffordable?  Is the seller trying to sell the home, but due to market conditions, it is no longer worth what is owed?  What are the specific circumstances surrounding the inability to 'keep' the home?  This is the 'hardship'. 

You do not necessarily have to be behind on your mortgage payments in order for a lender to qualify you for a short sale.  This used to be the case, and there are many people who say this is still the case, but not always.  It will all depend upon which route the short sale takes, who the investor is, who the servicer is, and under which program the short sale is accepted.  However, if you are already behind on your payments, there is no time to waste.  In fact, if you are already behind, we hope that you have already contacted your lender or mortgage servicer to see if 'something' can be worked out.  Many lenders would rather renegotiate the terms of your debt, than to write off a loss.  We HIGHLY recommend that all sellers in this situation first try a modification on their mortgage, as we are now seeing this to be the first requirement under the HAFA program.

Secondly, if you have plenty of cash reserves, other financial investments (lenders will usually not consider a 401k - so that may be safe), or if you have a positive monthly cash flow, the lender may not qualify the seller for a short sale.  This is not always the case, however. Therefore, all short sale cases must be explored on an individual basis as there is no ONE litmus test. 

And be sure that if you are trying to keep any part of the equity you already have in your home, you will not have success with a short sale acceptance.  If a home is worth $200,000 and you only owe $150,000, then there is $50,000 in equity.  Why would a lender take a loss when the Seller can take the loss?

So, if you can not keep up with your payments for a viable reason, if you don't have the cash reserves or sufficient income to pay your debt, AND your home is not worth what you owe... then a short sale may be in your future!

As previously mentioned, the landscape is changing with regards to how short sales work under the new HAFA program.  Be sure to read our new page with a brief review of the relief this program may bring to the short sale industry.

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