What Is a Short Sale? A Plain-Language Guide for New York Homeowners
You may have heard the term “short sale” from a lender, a real estate agent or a neighbor. If you are a homeowner who owes more on your mortgage than your home is worth, and you are struggling to make payments, a short sale may be one of your best options. Here is what it means in plain language.
What is a short sale?
A short sale is when you sell your home for less than you owe on your mortgage, and your lender agrees to accept the sale price. The sale is “short” because the money from the sale falls short of paying off the full loan.
For example, if you owe $400,000 but your home will only sell for $340,000, your lender may agree to accept the $340,000 instead of foreclosing. The key word is agree. A short sale only happens with your lender’s written approval.
Why would a lender agree to a short sale?
Foreclosure is slow and expensive for lenders, especially in New York, where foreclosures take years to finish in court. A short sale is often faster and less costly for them, so many lenders will consider one if you can show financial hardship.
Who is a short sale for?
A short sale may make sense if:
- You owe more on your mortgage than the home is worth
- You are behind on payments, or soon will be, because of a job loss, illness, divorce, death in the family or another hardship
- You have tried, or do not qualify for, a loan modification or repayment plan
- You would rather sell and move on than go through foreclosure
How a short sale works, step by step
- Get advice first. Talk to a housing counselor or a nonprofit like Abraxas Foundation about whether a short sale fits your situation.
- List the home with a real estate agent who has short sale experience.
- Send your lender a hardship package, usually a hardship letter, recent pay stubs or proof of income, bank statements and tax returns.
- Accept an offer from a buyer, subject to your lender’s approval.
- Wait for the lender to review. This can take weeks or a few months. If there is a second mortgage or home equity loan, that lender must agree too.
- Close the sale once you have the lender’s written approval letter.
Short sale vs. foreclosure
For most homeowners, a short sale is less damaging than a completed foreclosure. It is usually easier on your credit, you choose your moving date instead of facing an eviction, and you may be able to buy a home again sooner. Read our full comparison of short sale vs. foreclosure in New York.
Important things to check before you sign
- The remaining balance. Your lender’s approval letter should say whether it is waiving the rest of what you owe. Have an attorney review it before closing. Abraxas can refer you to free legal help.
- Taxes. Forgiven mortgage debt can sometimes count as taxable income. Ask a tax professional about your situation.
- Second mortgages and liens. Every lender with a lien on the home has to agree to the short sale.
- Scams. Never pay upfront fees for short sale help, and never sign over your deed to anyone who promises to handle it for you.
Can you do a short sale if you are already in foreclosure?
Often, yes. In New York you can usually pursue a short sale up until the foreclosure auction. The court-ordered settlement conference is one place to raise it. The earlier you start, the better your chances.
Help moving after a short sale
Leaving your home is hard, and moving costs money you may not have. Abraxas Foundation offers a short sale relocation grant to help New York homeowners who complete a short sale cover the costs of moving and starting over. See if you qualify. It is free to apply.
Get free help today
Abraxas Foundation is a New York nonprofit that helps homeowners understand their options and avoid foreclosure. We meet you at your home, our help is completely free, and we can refer you to free legal assistance and HUD-approved housing counselors.
Call (929) 346-5734 or tap the button below for a free, confidential review.
Helpful official resources: NY Courts CourtHelp: Foreclosure and NY DFS Foreclosure Consumer Bill of Rights.
This article is general information, not legal or financial advice. Speak with a housing counselor or attorney about your situation.
