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Should you choose a short sale over a foreclosure?


Who qualifies?

Not every distressed homeowner qualifies for a short sale. Also, since the agreement to allow a short sale depends on you making a convincing case to your lender, even a distressed homeowner who's eligible for short sale may not have that option. If you're considering proposing a short sale to the bank, make sure you understand -- and meet -- its requirements before you make the proposal [source: EForeclosureMagazine.com].

Lenders generally accept short sales for homes that meet certain criteria. First, the home must be in mortgage default, meaning that you've missed enough payments that the bank is ready to begin foreclosure proceedings against you. Second, the home should be worth less than what's owed on the mortgage. Thanks to widespread home overvaluation during the housing boom of the past decade, this is unfortunately the case for many mortgages, both whole and delinquent. But you'll likely need to have your home appraised to verify that it is indeed worth less than what you owe on it [source: EForeclosureMagazine.com].

The final qualification for a short sale is proof of financial distress. You'll have to show your lender that paying your mortgage would put you in significant financial hardship, or that a job loss, death in the family or other major incident is hampering your ability to pay. Likewise, many lenders will expect to see a list of your assets; you'll need to show the bank that you don't have cars, savings or other property that it could pursue to cover the mortgage. Once you know you meet these conditions -- and any lender-specific criteria that you may have to consider -- you can prepare your proposal for short sale with the confidence that you have the best possible odds of the bank allowing you to pursue this lifeline [source: EForeclosureMagazine.com].


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