Despite what the name seems to suggest, a short sale has nothing to do with the amount of time it takes to sell a property, and everything to do with how much it sells for. A short sale is when a distressed homeowner sells their property for less than the amount due on the mortgage. There are a lot of misconceptions about what short sales are and why they happen in the first place. Learn more about the process so if you encounter a short sale opportunity while shopping for a new home, you know how to proceed strategically.

What’s The Difference Between A Short Sale And A Foreclosure?

First things first, a short sale and a foreclosure are not the same thing. In a short sale, the homeowner initiates the sale of the home, but in order for a short sale to be plausible, the home must be worth less than the amount the homeowners still owe on the mortgage. Translation: they must be behind on their mortgage payments with no foreseeable way to catch up.

With a foreclosure, the bank takes ownership of the home after the buyer is unable to make payments. The key difference is that this process is initiated by the lender and not the homeowner. This process has the lender forcing the sale of the home in order to recover as close to the original loan amount as possible. Most times foreclosed homes have already been abandoned but if by chance the homeowner still lives there, an eviction would be part of this process as well.

Benefits Of A Short Sale

The main benefit of a short sale over a foreclosure is that the process is voluntary and not forced. While you may have to wait at least 2 years to apply for another mortgage after a short sale, most foreclosures would have you waiting a required 7-year time span.

How Long Do Short Sales Take?

Typically speaking, foreclosures tend to take less time than short sales because the lender is motivated to liquidate the home as fast as possible. When you put an offer down on a short sale, prepare yourself for a slow and unpredictable timeline. Sometimes it can take weeks (or even months) before you know if your offer has been accepted.

Should I Sell My Home Via A Short Sale?

If you’re considering a short sale, things have likely become quite overwhelming on your end. Selling via a short sale means losing your property, walking away with $0 in profit, and finding a way to manage the emotional stress that comes along with making this type of decision. Selling a home via a short sale is never ideal. The only reason why most people choose this option is to avoid foreclosure.

How To Qualify For A Short Sale

Before diving into this process, know that you should consider how likely it is that the lender will want to work with you on a short sale by seeing things from their perspective. Remember, the lender isn’t required to do a short sale so the decision to move forward is at their discretion. No matter what your circumstances are, there’s no way around gathering and providing a lot of documents to apply for a short sale. The main reason why most short sales fail to close is a direct result of improper documentation so it’s always in your best interest to stay organized and ensure you’re providing everything necessary to increase your chances of approval.

Hardship Letter

The hardship letter is arguably the most important part of the short sale package. This letter needs to tell the story about how you got into your present situation, what you’ve done to find a solution, and why a short sale is the best option at the moment. It also needs to contain the loan number and be signed and dated.

Proof Of Assets And Income

Take time to gather all the documents you’ll need to prove your assets and income to the lender. These could include bank statements, medical bills, pay stubs, a termination notice from your former job, or a divorce decree. It’s on you to come up with the short-sale proposal. Be aware that the lender ultimately approves or denies a short sale after receiving all the details. It’ll be your responsibility to find a buyer for your home.


Aside from the main mortgage lien, you’ll also have to provide documentation for additional liens (for example, unpaid income taxes, unpaid homeowner’s association dues, etc.). Part of the short sale process requires you to have all creditors release your liens. They may do this if you agree to pay them in full or make some kind of payment arrangement. Some lien holders like the CRA may agree to take a full loss and release the lien for zero repayment as a result of your financial hardship.

Comparative Market Analysis

If you think your sale price may be rejected or countered by the bank, you may want to ask your real estate agent to include a comparable market analysis with your short sale package. The CMA compares active, pending, sold and expired listings to help you justify the sales price you’ve chosen. If your home is in need of repairs, be sure to include a minimum of three repair estimates for each job that’s required and be aware that the bank will always choose the lowest estimate, so submit accordingly.

How To Buy A Short Sale Home

Whether you’re considering buying a short sale home, or just want to be prepared if you come across one during your house hunt, there are a few important things you should know:

Find Short Sale Properties

While some short sale listings are easily found through real estate websites, some may require a bit more detective work to unearth. Look for terms like “Subject to bank approval,” or “Give the bank time to respond,” as a hint that the property may be a short sale. Having a real estate agent can be a huge advantage if you’re looking to buy a short sale property or fall in love with one unknowingly, as they often have experience with these types of listings or may even have a specific certification that could help.

Perform Research For Renovations Or Repairs

Costs related to repairs and renovations will vary depending on the property; regardless, it always pays to spend time creating a realistic budget since it’ll play a large role in determining if you can afford the property when all is said and done. Don’t forget to factor in labour costs as well as materials and consider things like permits, inspection fees, storage costs, trash removal, etc.

Always do a home inspection. You might be tempted to try and speed up the process by forgoing this like you would with a regular property sale, but that would be a big mistake. Not only do you have the time to do an inspection, but not doing so could be disastrous.

Identify Liens And Mortgages

Always ask the seller (or the agent) what liens are currently on the property and which lender is the primary lien holder. Confirm this information through a title search before closing the deal to make sure there aren’t any undisclosed liens on the property that could cause problems for you later.

Figure Out How You’re Going To Finance The Home

The ability to move quickly is the key to success with a short sale, so having a financing plan prepared is critical. If you’re a good credit risk, the existing lender may be willing to give you a loan and since they already have their hands on a lot of your important paperwork, this could speed up the loan application process and work in your favour. Once the agreement is finalized, it’s not uncommon for the lender to require closing in as little as 20 days, which would make shopping for a mortgage at that point nearly impossible.

Reach Out To A Lender

You or your agent should make it a point to speak with the lender’s loss mitigation department rather than the collection or customer service department, which is only going to be interested in recouping past due loan payments. Pinning down the decision-maker can be one of the biggest initial hurdles in this short sale process. Keep in mind that you will first need to have the homeowner complete and sign an authorization letter (notarization is usually required), which gives the lender permission to discuss the mortgage situation with you.

Apply For The Short Sale Via Your Chosen Lender

Most lenders will have a specific application for a short sale request. If yours doesn’t, find out what paperwork they require to consider a short sale.

Create A Proposal

Typically, your proposal would consist of materials including your application, authorization letter, purchase/sale contract, hardship letter, settlement statement etc.

Negotiate And Close On The Home

Lenders commonly reject offers, so don’t be discouraged if this happens to you. Often they’ll come back with a counteroffer and, as with any real estate transaction, you should determine in advance what your absolute threshold is and be prepared to walk away if it can’t be met.

Whether you’re buying or selling a short sale property, expect the process to be complicated and drawn out. Do your homework, come prepared with the proper paperwork, know which questions to ask and connect with your real estate agent to better understand the process before making any big decisions to buy or sell a short sale property.