What Is a Short Sale?

The lender, not the seller, controls the price. The seller submits a hardship package: a hardship letter, financial documents, the buyer’s offer, and often a listing agreement. The lender orders its own valuation, compares the offer with what foreclosure and resale would net, then approves, counters, or declines. An approval letter states the net amount the lender will accept, an expiration date, and whether the borrower is released from the remaining balance or left exposed to a deficiency claim, depending on the lender and state law. Junior lienholders must agree to their reduced share as well, which is where many files stall.

Short sale leads show up as owners who owe about what the house is worth or more, are behind on payments, and cannot sell the usual way. Callers screen for the balance, number of liens, delinquency, hardship, and any foreclosure date, the qualification work VA Horizon’s callers do on a pay per qualified lead basis. Acquisitions needs a negotiator, in-house or outside, because the timeline is long and files sit in servicing queues. The wholesaler’s contract should be contingent on lender approval, with room to walk if approval takes too long or comes back on different terms. Many lenders also require an arm’s-length affidavit and restrict reselling the contract at a higher price, so plan the exit early.

A short sale is a sale. It is neither a foreclosure nor a deed in lieu, and investors cannot set the price: the approved number belongs to the lender. Sellers also assume approval erases the debt, but forgiven balances can carry tax consequences and deficiency rights may remain, so they should talk to a tax professional or attorney. Time is the main risk. Motivation fades, foreclosure deadlines keep running, and a slow approval can end the deal.