When Is A Short Sale Needed To Sell A Home?

Q: I am a realtor with a new listing–the homeowner is behind on their mortgage, how do I know if we’ll have to do a short sale? Crystal, Mount Holly, NJ

A: Great question. Whether a short sale is necessary to sell the home depends primarily on two factors: 1) Net $ Proceeds From Sale and 2) Outstanding Lien Payoff Amounts. Unfortunately, both the net proceeds from the sale and the outstanding lien payoffs will occur in the future on the closing date and are currently unknown. When a borrower is in default, mortgage lien payoff balances typically skyrocket and increase on a daily basis due to unpaid interest, legal fees, property taxes etc. However, you can normally predict whether a short sale is likely or probable by gathering information about property liens from the homeowner and by doing a Charles Jones lien search on the property when you first list the property. You can also check for recently sold property comparables for similar properties in the area. Then, either you, an attorney or title company can put all that info together in a preliminary property settlement statement (Hud-1)–if the net proceeds are positive then a short sale may not be necessary but if the net proceeds are negative, then a short payoff will probably be necessary to close the property. The higher the positive net proceeds amount in your preliminary Hud-1, the lower the likelihood that a short sale will be required to sell the property. Thanks for your question, Crystal.

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