How Short Sales Work in New Jersey

What is a short sale?

A short sale is a real estate transaction in which the homeowner sells for less than the amount owed on the mortgage, and the lender agrees to accept the sale proceeds. For many homeowners facing hardship, it can be an alternative to foreclosure.

Is a short sale right for you?

Short sales generally make sense when you owe more than the home is worth and you're experiencing a financial hardship such as job loss, divorce, medical expenses or relocation. A free HUD-approved housing counselor can help you compare options, including loan modification. Find one through the CFPB.

The short sale process, step by step

1. Evaluate your situation with your agent, attorney and a housing counselor.
2. List the home at a price supported by the market.
3. Assemble the lender package: hardship letter, financial statements, tax returns, bank statements and the authorization for your agent to speak with the lender.
4. Accept a buyer's offer, subject to lender approval.
5. Lender review: the lender orders its own valuation and evaluates the offer and your finances.
6. Approval letter: the lender issues written terms, including how any remaining balance (the deficiency) will be handled.
7. Closing: the sale closes on the approved terms.

Questions to ask before you agree

• Will the lender waive the deficiency, and is that in writing?
• Are there second mortgages or other liens that must also approve?
• What are the tax consequences of any forgiven debt? Ask a tax professional.
• How will this affect my credit compared with foreclosure?

Buying a short sale

Short sales can offer opportunities for buyers, but they require patience. Lender approval can take time, and properties are often sold as-is. An experienced agent helps you structure an offer that a lender is likely to approve.