Scoring Foreclosure Property Deals: Short Sales Are On the Rise and Offer Troubled Home Sellers a Way Out -- And Buyers a Great Opportunity

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Three main ways to buy a foreclosure home: Short sale, auction and bank-owned sale (REO properties); Short sales offer 10-20 percent discounts to home buyers; not for the buyer in a hurry; Short sales can take time.

The following facts, tips and comments, unless otherwise attributed, can be sourced to Dennis Green, General Manager,

  • Short sales are when the mortgage lender allows a distressed property to be sold at a price lower than the homeowner's outstanding mortgage balance, with the difference generally but not always forgiven. This relieves the borrower (the seller) of their ownership and debt burden without marring their credit report the way foreclosures would, and reduces the home sale price to current market value (or lower) so it's appealing to buyers.
  • Banks are more interested in short sales now than ever before, and they're doing more of them. The largest banks and thrifts completed 13,254 short sales in the third quarter of 2008, up 61 percent from the second quarter, when they completed 8,222 short sales, according to a report from federal regulators. Servicers including Fannie Mae and Freddie Mac are amenable to short sales, as well as lenders such as Bank of America, Citibank and Wells Fargo.
  • Short-sale discounts usually range from 10 to 20 percent. Clearly, lenders want to recover as much of the mortgage amount as possible, but selling at a discount in this range typically still saves them money versus letting the home fall into foreclosure.
  • Short sales can take several months to complete, considering the primary mortgage lender, as well as any other lien holders, must approve an offer. Also, the home seller must prove to the mortgage company that they cannot afford to make payments on the mortgage. To approve short-sale transactions, lenders typically require the following documentation:

1. An estimated HUD-1 settlement statement showing net-payoff to the lender.
2. A hardship letter from the seller accurately describing the reasons why they are not able to make mortgage payments in the future.
3. A financial declaration from the seller itemizing monthly income and expenses.
4. 3-6 months of seller bank statements.
5. Two years of seller tax returns.
6. A property condition and repair estimate.

  • Identify potential short-sale properties on ( Basic membership, which allows searching the entire inventory of foreclosure listings, is free.
  • Cautionary Notes: "If you're a home buyer, don't put more money down as a deposit on a short sale than you can afford to walk away from. If the deal takes longer than you'd like, you may choose to pursue another property. If you're the home seller, don't attempt a short sale unless you really can demonstrate that making your mortgage payments is a hardship…. If you're the home seller, check your state laws to know if you'll be taxed on the forgiven mortgage debt."

About, the nation's largest free foreclosure listings marketplace, is a service of DepotPoint, Inc. ( With more free, detailed property information than any other national online foreclosure marketplace, as well as foreclosure property tracking services available nowhere else, ForeclosurePoint provides the most effective way for homebuyers, investors and real estate professionals to participate in the buying and selling of default properties. ForeclosurePoint has more than 70,000 members across the U.S.


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Cary Brazeman
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