Short Sales & Foreclosures

As more homeowners exit forbearance, some will fall behind on their mortgages and many local markets will see a rise in distressed sale properties. The flow of distressed sales is expected to be a fraction of those during the Great Recession, but nonetheless, REALTORS® will need to develop new skills to respond on behalf of their clients and their communities.

Here you'll find more information on short sales and their challenges, the government's efforts to address these challenges, and tools to help you navigate the short sale process.

What is a short sale?

A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.

Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.

A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.

What challenges have short sales presented for REALTORS®?

The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:

• Limited experience. Many REALTORS® are new to the short sales process; a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.
• Absence of a uniform process and application. Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
• Multiple lenders. When more than one lender is involved, the negotiations are much more difficult. In the past, second lien holders held up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing. This practice is less common today.

As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away and harm distressed sellers.