My Bank Gave Me the Option to Short Sale My House — What Do I Do?

If your mortgage company told you that you have the option to short sale your house, you may have ended the conversation with more questions than answers.

What exactly does that mean?

Do you need the bank's approval before listing your home?

Are you supposed to find a real estate agent first?

And if the bank is suggesting a short sale, does that mean foreclosure is already coming?

The most important thing to understand is that being given the option to short sale is not the same thing as having a short sale approved.

It usually means your mortgage company is telling you that a short sale may be one possible way to resolve your mortgage situation if you cannot—or have decided not to—keep the property.

The next step is figuring out whether a short sale actually makes sense for your situation and, if it does, getting the process started correctly.

First, What Does It Mean When the Bank Says I Can Short Sale?

A short sale happens when a home is sold and the proceeds from the sale are not enough to pay everything owed against the property.

Because the lender may receive less than the full mortgage balance, the lender generally must approve the short sale before the transaction can close.

If your lender has mentioned a short sale, you may have already been through other loss-mitigation options.

Perhaps:

• Your loan modification was denied.
• You received a modification but can no longer afford the new payment.
• Your forbearance has ended.
• You have fallen behind on your mortgage.
• Your lender determined that you don't qualify for another retention option.
• You simply don't want to continue struggling to keep the property.

Whatever brought you to this point, a short sale can potentially provide a way to sell the property rather than allow the situation to progress toward foreclosure.

Do I Get Short Sale Approval Before I List My House?

Usually, no.

This is one of the most confusing parts of the process for homeowners.

In many traditional short sales, the lender needs information about the actual proposed sale before making its final decision. That means the property is typically listed for sale, a buyer makes an offer, and the offer and supporting documentation are then submitted to the lender for review.

Some lenders and loan programs may provide preliminary eligibility information or specific instructions before the property is listed.

That is why it's important to carefully review anything your mortgage company has sent you.

If the lender gave you a deadline to list the property, pay particular attention to that date.

Your First Step: Find Out Exactly What the Bank Told You

Before doing anything else, gather the correspondence you have received from your mortgage company.

Look for:

• The name of the loss-mitigation program being offered
• Any short sale instructions
• Deadlines
• Financial-document requirements
• Authorization forms
• Listing requirements
• Information about foreclosure activity
• Contact information for your assigned representative

If the lender discussed the short sale only by telephone, you may want to ask whether they can provide the requirements in writing or direct you to the appropriate short sale department.

Don't assume that "you can short sale" means you have unlimited time to decide.

If a foreclosure process has already begun, important deadlines may still be running while you explore the short sale.

Next, Find an Agent Who Actually Understands Short Sales

A short sale is not a typical real estate transaction.

Listing the property and finding a buyer are only part of the job.

The transaction may also involve communication with the mortgage servicer, submission of a short sale package, valuation reviews, buyer-offer negotiations, lien issues, investor guidelines and multiple rounds of lender requests.

The agent should understand how to market and sell the property while also navigating the lender-approval process.

Experience becomes particularly important when there is more than one loan, a foreclosure date is approaching, the property needs repairs, there are additional liens, or the lender's valuation doesn't match what buyers are willing to pay.

Don't Automatically Accept the Bank's Idea of What Your Home Is Worth

The lender may order a valuation as part of the short sale process.

That doesn't necessarily mean the number will accurately reflect what a buyer will pay for the property.

Condition matters.

Location matters.

Deferred maintenance matters.

And most importantly, actual market response matters.

If a property has been exposed to the market and qualified buyers aren't willing to pay the lender's requested price, that information can become important during negotiations.

A properly marketed short sale creates evidence of what the market is actually willing to pay.

What If I Haven't Missed Many Payments Yet?

You don't necessarily have to wait until the situation becomes a crisis to start asking questions.

Every lender, investor and homeowner situation is different, and short sale eligibility depends on the circumstances surrounding the loan.

If you already know that keeping the house isn't financially realistic, learning about your options earlier can give you more time to make thoughtful decisions.

Waiting until a foreclosure sale is imminent can make everything more difficult.

What If My Loan Modification Failed?

This is a situation I see frequently.

A homeowner applies for a loan modification hoping to make the mortgage affordable again. Sometimes the modification is denied. Other times the homeowner receives a modification, but the payment still isn't sustainable.

Eventually, the lender may introduce the possibility of a short sale.

That doesn't mean the homeowner did anything wrong by trying to save the house.

It simply means the situation has changed and it's time to evaluate the next option.

If you have reached that point, the goal isn't to spend months looking backward.

The question becomes:

What is the best move from here?

Do I Have to Accept a Short Sale Just Because My Bank Offered It?

No.

A short sale is an option—not an obligation.

Before deciding, you should understand the alternatives that may be available based on your financial situation, loan and timeline.

Depending upon the circumstances, those might include keeping the property, selling conventionally if sufficient equity exists, pursuing another loss-mitigation option, completing a short sale, or considering other legal or financial alternatives.

This is also why I don't believe every struggling homeowner should automatically be pushed toward a short sale.

The right solution depends on the homeowner, not the transaction.

What Should I Do Right Now?

If your lender has told you that a short sale is an option, don't panic—but don't put the letter in a drawer and forget about it either.

Start by answering a few basic questions:

1. How much do you currently owe?
2. What is your property realistically worth today?
3. Are there additional mortgages, liens or assessments?
4. Has a Notice of Default been recorded?
5. Is there a foreclosure sale date?
6. Did the lender give you a deadline to list the property?
7. Do you want to keep the home if an affordable solution exists, or are you ready to sell?

Those answers help determine what should happen next.

You Don't Have to Figure Out the Short Sale Process Alone

If your bank has told you that you can short sale your house and you're staring at the paperwork wondering "Okay...now what?", that's a perfectly reasonable question.

This isn't something most homeowners have ever had to do before.

I have been working in Southern California real estate for more than 25 years and have extensive experience helping homeowners navigate short sales and complicated property situations.

My approach starts with understanding what's happening—not pressuring you to list a house.

Request a Free Short Sale Options Review

If your lender has suggested a short sale, I can review the basic details of your property and situation with you and help you understand what your next steps may look like.

There is no obligation to list your home.

Sometimes the most valuable first step is simply knowing where you stand and what options you still have.

Please complete the Short Sale Review form towards the top of this page or by clicking on one of the buttons.  If you are browsing during busines hours, Call or text our Broker, Dawn Anderson 714-932-1746— for immediate assistance and relief.

Short-sale eligibility and approval depend upon the mortgage lender, loan investor, lienholders, borrower circumstances and applicable program requirements. Privacy cannot be guaranteed once a property is publicly marketed, and required transaction disclosures must still be made. This article provides general real-estate information and is not legal, tax or financial advice.