Short Sale in Kansas City: How It Works and Whether It's Right for You

What is a short sale?

A short sale means selling your home for less than you still owe on the mortgage. The Federal Trade Commission explains that before you can list a home as a short sale, your servicer or lender must approve it and agree to accept the sale proceeds instead of going ahead with foreclosure. HUD describes it the same way: the servicer accepts a partial payoff as full satisfaction of the mortgage balance. Sources: FTC and HUD Exchange.

The important phrase is the lender must approve. You cannot simply decide to sell low and have the debt disappear. The lender (or the investor who owns your loan) has to agree to the price and the terms.

Is a short sale right for you?

A short sale may be worth discussing if you owe more than the home is worth, you have a real hardship, and keeping the home is not realistic. It is probably not the right tool if you have equity. In that case a traditional sale may let you pay off the loan and keep the difference. The FTC walks through how to calculate your equity first.

Servicers must also consider options in a set order for FHA loans, according to HUD: bringing the loan current, forbearance, modification, then a pre-foreclosure sale (the FHA's version of a short sale), and then a deed in lieu. Ask your servicer which options your specific loan allows.

Short sale versus foreclosure versus deed in lieu

• Short sale: you sell with lender approval; the lender accepts the proceeds.
• Deed in lieu of foreclosure: you voluntarily transfer the title to the lender in exchange for cancelation of the remaining mortgage debt. The FTC notes it may not be available if you have a second mortgage or other loans secured by the home.
• Foreclosure: the lender takes the legal route to sell the home. The FTC notes that a foreclosure is likely to be reported on your credit for seven years and may affect future credit more than a short sale or deed in lieu.

Questions to ask before you start

• Will the lender fully waive the remaining balance? The FTC advises asking whether the lender will forgive the difference and not separately seek a deficiency judgment, and getting that agreement in writing.
• Are there second mortgages or other liens that also need approval or payoff?
• Does the lender have a deadline or a scheduled sale date that could affect timing?
• What are the costs, and who pays them? Ask the lender and your closing agent for an itemized list.

Protecting your credit afterward

The FTC recommends getting a letter from your lender confirming the loan closed as a short sale (not a foreclosure), sending a copy to the three credit bureaus, and checking your credit reports for accuracy. It can help if you apply for a mortgage in the future.

Frequently Asked Questions

How long does a short sale take?

It varies by lender and by how complete your paperwork is. We cannot give an exact number, and anyone who guarantees one should be questioned.

Can I still be sued for the difference after a short sale?

It depends on what the lender agrees to. That is why the FTC recommends getting a waiver of the remaining balance in writing before you close.

Will a short sale ruin my credit?

It will affect it, but according to the FTC you may still qualify for a new mortgage in a few years, and a short sale is generally less damaging than a foreclosure.

Should I pay anyone upfront to "save" my home?

Be careful. The FTC warns that no one can guarantee to stop a foreclosure. Ask any professional how they are paid before you sign.

This article is general information only and not legal, tax or financial advice. Short sale approval is at the lender's discretion, and laws, tax rules and timelines change. Please speak with a licensed attorney, tax professional or HUD-approved housing counselor about your situation. Kairos Service LLC does not guarantee any outcome.