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Short Sale Considerations

If you decide to pursue a short sale, consider taking the following actions.

Contact a Qualified Real Estate Professional

Interview several real estate professionals and ask about their experience in short sales, the number of short sale transactions that they have handled, and their education and training in short sales. Lenders find it difficult to work directly with the homeowner because they are already “on the hook” for the amount they owe.  Also, short sales can be difficult and are definitely time consuming. They require a lot of negotiating skills as well as patience, your Realtor will handle things every step of the way.
Review the real estate professional’s background and continuing education on the ADRE website at: http://services.AZRE.gov/publicdatabase
Ask if the real estate professional has obtained a short sale certification, such as the Short Sales and Foreclosure Resource Certification (“SFR”) www.realtorfr.org
Find a REALTOR® at www.aaronline.com/ConsumerAssistance/FindARealtor

Investigate Documentation and Eligibility

Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan and the lender is convinced that it will fare better by agreeing to a sale for less than the outstanding loan amount than foreclosing.

Determine the Estimated Fair Market Value of the Property

You must prove to the lender that the home is worth less than the unpaid loan balance. Consult a real estate professional or an appraiser for assistance in estimating the value of the property.

Consult Legal Counsel

The importance of competent legal counsel to help you determine whether a short sale is the best option and to advise you during the short sale process cannot be over emphasized. See the legal resources listed on the previous page or visit www.azbar.org

Understand that a Short Sale May not Discharge the Debt

Even if a lender agrees to a short sale, the lender, the VA, or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to “release the lien” on the property as opposed to agreeing to accept the purchase price as “full and final settlement of the debt” on the property. Therefore, be certain of the terms of any short sale before making a decision, consult an attorney regarding whether the lender is entitled to pursue a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing.

Obtain Tax Advice

A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on tax consequences of debt relief, seek professional tax advice and go to:

Be Aware of the Impact on Your Credit score

The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as “pre-foreclosure redemption,” “paid in full for less than full balance” or other similar term.

Understand That There May Be a Waiting Period Before You Can Buy Another Home

Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there may be a waiting period before you can purchase another home.

Home Affordable Foreclosure Alternative (HAFA) Program

The HAFA program was designed to give homeowners different alternatives to a foreclosure, which include incentives for completing a short sale. For more information on the options available, visit the HAFA program website: www.makinghomeaffordable.gov/hafa.html
To find out which option you are eligible for go to:
To find out if your mortgage servicer participates in the HAFA program, go to:
National Association of REALTORS® HAFA brochure:
Guidelines and Forms:

Review the Arizona Association of REALTORS (AAR) Short Sale Forms

AAR has developed a Short Sale Addendum to the Listing Agreement:
and a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract:
www.aaronline.com/documents/SSARPC.pdf to assist in a short sale transaction. Review these contract forms and any other forms you are asked to sign so that you thoroughly understand your rights and obligations.


The Mendoza Team

Keller Williams Realty Sonoran Living | Each Office Independently Owned and Operated
4001 E. Mountain Sky Ave , Suite 105 • Phoenix AZ 85044 | 480-706-7234