Understanding Short Sales

If you owe more on your home than it's currently worth, selling your home may still be possible.

A short sale occurs when a lender agrees to accept less than the total amount owed on the mortgage so the property can be sold. Unlike a traditional home sale, every short sale requires lender approval before it can close.

Chris and Andrea Murray have extensive experience helping homeowners, lenders, mortgage servicers, trustees, attorneys, and asset managers navigate short sales throughout Southern California. Their experience includes conventional loans, FHA loans, VA guaranteed loans, reverse mortgage properties after they have reverted to lender ownership, bankruptcy court sales, REO properties, and other distressed real estate transactions.

Every lender has different requirements, and every homeowner's situation is different. Our job is to help you understand the real estate side of the process, explain your options, and guide you through the transaction if a short sale appears to be the right solution.

Over the past couple of years, we've started receiving more calls and emails from homeowners who purchased their home within the last 12 to 24 months and are now finding it difficult to keep up with the overall cost of homeownership.

In many cases, it isn't the mortgage payment alone that's creating the problem. Rising property taxes, increasing homeowners insurance premiums, higher utility costs, HOA dues, and other monthly expenses have made owning a home much more expensive than many people expected when they purchased.

For homeowners who bought recently, there's often another challenge. They simply haven't owned the home long enough to build much equity. If selling the home won't generate enough money to pay off the mortgage, a traditional sale may not be possible.

We're also seeing this with newly built homes. Buyers who purchased new construction during the past couple of years sometimes find themselves needing to relocate or reduce their monthly expenses before they've built enough equity to sell conventionally.

Throughout California, increasing fire insurance costs have also become a significant issue for many homeowners. In some areas, insurance premiums have increased dramatically, creating additional financial pressure that didn't exist when the home was purchased.

Every situation is different, but if the overall cost of owning your home has become difficult to manage, understanding your home's current value is often the first step in determining what options may be available

A short sale is the sale of a property for less than the total amount owed on the mortgage. Because the sale proceeds won't fully pay off the loan, the lender must agree to accept the reduced payoff before the transaction can close.

That approval process is what makes a short sale different from a traditional home sale.

The property is still listed on the open market, marketed to buyers, shown like any other listing, and sold at current market value. Once an offer is accepted, the lender reviews the contract, financial information, and supporting documentation before deciding whether to approve the transaction.

No.

One of the biggest misconceptions is that anyone who owes more than their home is worth automatically qualifies for a short sale.

Every lender has different guidelines. Approval often depends on factors such as:

• Your financial hardship

• The current market value of the property

• The amount owed on the loan

• The investor who owns the mortgage

• The documentation provided to the lender

Because every situation is different, it's important to understand your options before assuming a short sale is or isn't available.

A short sale may be worth exploring if:

• You owe more than your home is worth.

• Your financial situation has changed.

• Monthly housing costs have become unaffordable.

• You're relocating for work or military service.

• You inherited a property that's underwater.

• Keeping the property is no longer practical.

Some homeowners have enough equity to sell traditionally. Others may qualify for a loan modification or another workout option through their lender. Every homeowner's circumstances are unique.

The real estate portion of a short sale begins much like any other home sale.

We determine the property's current market value, prepare the home for the market if appropriate, professionally market the property, and negotiate the strongest offer possible.

Once an offer is accepted, the lender reviews the purchase contract together with the homeowner's financial package and supporting documentation. The lender then determines whether to approve the short sale, request additional information, negotiate different terms, or decline the request.

Because lender approval is required, short sales often take longer than traditional transactions. Staying organized, responding quickly, and maintaining communication throughout the process helps everything move as smoothly as possible.

Homeowners with a VA guaranteed loan may have an additional option known as a VA Compromise Sale.

A VA Compromise Sale is the Department of Veterans Affairs' short sale program for eligible homeowners with VA guaranteed loans. While similar to a traditional short sale, it has its own approval process and requirements.

Generally, homeowners must demonstrate a legitimate financial hardship, the property must be listed at fair market value, and both the mortgage servicer and the Department of Veterans Affairs must approve the sale before closing.

We're also seeing this become more common with military families who receive Permanent Change of Station (PCS) orders shortly after purchasing a home. If they need to relocate before they've built enough equity to sell traditionally, a VA Compromise Sale may be one option worth exploring.

If you have a VA guaranteed loan, we'll explain how the real estate process works, coordinate with your lender, and help guide the transaction from listing through closing.