What Does "Working Short Sale" Mean?

What Short Sales Are

After a home is sold, the seller must use the proceeds to pay off the existing home mortgage, the real estate broker fee and transfer of other property taxes. Whatever is left over, the seller gets to keep. In a short sale, the home sale's proceeds are not enough to cover the mortgage plus the costs of selling the home, but the lender forgives the amount that the homeowner is short. The homeowner then secures a "lien release" that ensures the lender won't attempt to collect the unpaid balance in the future.

The short sale process sounds simple, but is usually difficult, time consuming and frustrating. The downturn in the real estate market has caused thousands of homeowners to attempt a short sale; quite often, the deal doesn't get approved before the home proceeds to foreclosure. This is due to the backlog of delinquent borrowers that lenders must work through. Approved short sales are usually the result of a successful partnership between the homeowner and an experienced broker and attorney who negotiates deal terms with the lender.

In order to work a short sale, homeowners will need to provide backup documentation that proves they cannot afford the mortgage payment. This documentation will include a financial statement the homeowner will complete; it will include income and asset information as well as debts. Also, pay stubs, investment statements, bank statements, tax returns and a hardship letter will be required. The attorney will also need a copy of the original mortgage.

Lenders usually insist that the home be listed on a multiple listing service with a licensed broker. The home will be advertised as requiring third party approval (the bank). After an offer has been received in writing, the broker will submit the offer to the bank. The bank will order its own broker price opinion -- a "BPO" -- to verify that the price is fair. The buyer will have his own appraisal and inspection as well. Then the waiting game begins: the bank will review the offer as well as the seller's financial situation and will issue a rejection, a counteroffer or an approval. If it's approved, the bank will want a speedy close. The seller should insist upon a lien release, which will be issued after the deal closes.