When to Plan for a Short Sale

A person who thinks that they will need short sale help sometime in the near future should begin planning for the potential of a short sale as soon as possible.  Requesting short sale help from a lender requires time due to the fact that lenders require documentation to be provided and procedures to be followed when determining a person’s eligibility for a short sale.


To begin, most lenders will not consider a borrower for a short sale unless a certain number of payments have been missed.  Some lenders will approve a borrower for a short sale just based on a person’s assumption that a short sale may be necessary in the future, but lenders are under no obligation to approve such a request.


Planning is important because before a short sale can take effect, a person’s credit score is already taking a hit due to the missed payments that are most likely present.


After a borrower has missed their most recent payments, they are most likely going to miss future payments while their request is being reviewed.  Lenders that receive a high number of short sale help requests can take up to six months to make a determination as to the fate of a person’s request for a short sale. 

While a person’s request is under review, their credit will continue to take a hit while payments continue to be missed, and further hits will be taken if payments continue to be missed while a potential buyer is waited on.


If a person has any income coming in, it is recommended that as much money as possible be set aside for the future, after the short sale is finalized.  This money will be used to pay for apartment rent, security deposits, or down payments for a less expensive loan in a more affordable area as necessary.  Anyone who thinks that they will be able to live according to the same standard of living before their short sale will be in for a rude awakening if careful planning is not done.

 Assuming a person’s short sale is approved, but the lender refuses to forgive the remaining debt on the original mortgage agreement, the homeowner will be responsible for paying down the remaining debt, which is another area where having a few dollars set aside will come in handy.  Failure to pay the remaining debt when requested by the lender can result in litigation and forfeiture of certain assets.  If the lender forgives the debt, some states will view the forgiven debt as earned income, and require the homeowner to pay taxes on the forgiven debt, so putting a few dollars aside for tax season is also advised (assuming that the state where the homeowner is located collects taxes on forgiven debts). 


If a lawyer is involved in this process, setting some money aside for legal fees is very wise.  Many attorneys who handle these types of cases know that their clients are facing financial hardship and will allow clients to pay off legal fees over time.  Any money set aside in savings can be used to pay down the cost of legal fees so that a new unpaid debt can be avoided. 

It probably goes without saying that even though a short sale is a good alternative to bankruptcy, certain sacrifices may have to be made before the lifestyle that was once enjoyed by the homeowner can be enjoyed again.