10 Short Sale Myths and 1 Truth

Myth 1:
You must be behind on your mortgage to qualify for a short sale. Lenders look for three things: a "verifiable hardship," such as a job loss, pay cut, job transfer, divorce or serious illness; a monthly cash-flow short-fall or pending shortfall and insolvency; or lack of liquid assets that would allow you to pay down your mortgage. Charfen said distressed homeowners often wait too long, and should consult with a qualified agent before burning through savings or trying such desperate measures as using a credit card to cover mortgage payments.

Myth 2:
Short sales rarely get approved. Charfen has an 85 percent success rate for closing short sales. However, they still take patience, requiring anywhere from 30 to 120 days for lender approval.

Myth 3:
Banks would rather foreclose than approve a short sale. Charfen said banks typically lose 35 percent more on a foreclosure than a short sale. They also avoid the hassle and liability of vacant properties if they can approve a sale before foreclosure.

Myth 4:
There's no time to negotiate a short sale. It's always worth a try. In one instance, a broker associate learned on a Friday that an elderly couple's home would be foreclosed on the following Monday. With minutes to spare, she worked with the lender to postpone the foreclosure (the case is still pending).

Myth 5:
It's fine to make simultaneous offers on short-sale properties. While it may be legal, Charfen bristles at buyers making offers on short sales that are not sincere. Multiple offers clog the system and could force sellers who think they have a solid offer into foreclosure when the offer is rescinded.

Myth 6:
A short sale is a fire sale. Not just any offer will do. Home sellers may counter; their agents can only bring reasonable offers to the bank, which typically means a little less than market value.

Myth 7:
Anyone can help navigate a short sale. Charfen suggests home-owners find a broker associate with special training in handling distressed properties.

Myth 8:
A short sale is not worth the effort. For buyers, short sale properties are often in better shape than foreclosures and are priced to sell quickly. For sellers, there is no lasting stigma for completing a short sale.

Myth 9:
Short sales are as financially damaging as foreclosures. Unlike foreclosures, short sales are not reported on a person's credit history and don't present problems with employment or security clearances. Home-owners who undergo a foreclosure are ineligible for a Fannie Mae-backed mortgage for five years, while a home-owner who closes a short sale is eligible for a Fannie Mae-backed mortgage after only two years.

Myth 10:
Short sale negotiations are adversarial. Charfen still hears from buyers' agents who loathe short sales. He once felt the same way. "I'd been told by some you have to be heavy-handed; it's adversarial," he said. "I can't stand high-blood-pressure conversations. I've never been able to do that." Charfen said successful short sales are more a matter of communication and organization - having all the paperwork in order and knowing exactly who needs what when in order to help banks approve a sale.

1 Short Sale Truth:
It can be a hassle, but it beats a foreclosure!