The Short Sale Process: A Step-by-Step Guide for Real Estate Professionals

Start here: What you'll learn

What is a short sale?

• The homeowner has a real financial hardship

• The home is worth less than the mortgage (often called being "underwater")

• The homeowner wants to avoid foreclosure and its consequences

A friendly overview of the process

The short sale in 5 clear phases

Phase 1: Get ready

• Confirm hardship and that the home is underwater

• Collect key documents: authorization to speak with the lender, hardship letter, tax returns, pay stubs or profit and loss, bank statements, monthly expenses, mortgage statements, HOA or tax statements

• Call each lender’s loss mitigation department to learn their required forms and how to submit

• Note any foreclosure dates or important deadlines so you can plan backwards

Phase 2: Price and prepare the property

• Do a market check using recent comparable sales, including distressed comps when available

• Price competitively to attract serious buyers

• Make low cost tune ups and get clean, well lit photos

• Be transparent that the sale requires lender approval and can take extra time

• Set expectations with buyers in writing so there are fewer surprises later

Phase 3: Manage offers and submit to the lender

• Look at the whole offer: price, financing, contingencies, and timeline

• Prefer pre approved or cash buyers who understand the process and can wait

• Build a complete package: cover letter, signed contract, seller documents, authorization, estimated settlement statement, your market data, and buyer proof of funds or pre approval

• Submit exactly how the lender requests and keep a record of what you sent and when

Phase 4: Negotiate and follow up

• Follow up weekly and keep notes of who you spoke with and when

• Expect a price opinion or appraisal. Share your comps, photos, and repair estimates

• If the value comes in too high, ask for a reconsideration and show your data

• If the lender counters, decide whether the buyer can adjust, and confirm fees and commissions in writing

• Escalate politely if the file stalls and deadlines are approaching

Phase 5: Close the sale

• Read the approval letter carefully: dates, net amount, fees, and whether any deficiency is waived

• Close before the expiration date, and make sure the final numbers match the approval

• After closing, keep copies of all release and closing documents

Common hurdles and simple fixes

More than one loan or lien

• Contact all lien holders early

• Junior lien holders may need a small payment to release their lien

• Expect separate approvals when there are multiple lien holders

Buyer fatigue

• Set expectations early about timing

• Give regular updates even if the status has not changed

• Keep a backup buyer interested when possible

Approval is about to expire

• Ask for an extension at least 10 days before the date

• Show progress toward closing in your request

Frequently asked questions (for beginners)

Will a short sale ruin my credit?

Do I still owe the difference after closing?

How long does a short sale take?

Can I stay in my home during the short sale?

What if there are repairs needed?

A realistic timeline

• Week 1: Gather documents, confirm lender requirements, set pricing plan

• Weeks 2–3: List the property, showings, negotiate offers

• Weeks 3–6: Submit the package, lender assigns negotiator, valuation ordered

• Weeks 6–10: Value review, counters if any, approval letter issued

• Weeks 10–14: Buyer final loan steps, title cleared, close within approval window

For sellers: After the sale

• Save all release and closing documents

• Monitor your credit to confirm proper reporting

• Talk with a tax professional about any 1099 C or tax questions

• Start a plan to rebuild credit

For agents: Practical checklist

• Day 0: Verify hardship and equity position, get authorization to speak with the lender

• Days 1–3: Collect the full document set, open title, identify liens, request HOA and tax statements

• Days 4–7: List with the right pricing, prepare comps and repair bids, set buyer expectations in writing

• Weekly: Status update to the servicer, update the buyer, keep a backup buyer warm

Simple talk tracks that prevent renegotiations

• Earnest money and clocks: Earnest money is refundable until lender approval. Inspection periods usually pause until approval, then restart

• Bids up front: We shared repair bids on day one so there are no surprises later

• Three levers: price, credits, timing. If traffic is low by day 10, we will adjust one of these

Quick KPI snapshot for agents

• First week activity: saves, showings, offers per 10 showings

• Approval cycle time, fall through rate, percent with backup ready

Glossary (plain English)

• Authorization: A signed document that lets your agent or attorney speak to the lender about your loan

• BPO: A broker price opinion. An agent hired by the lender gives an opinion of value

• Deficiency: The difference between what you owe and what the home sells for

• Loss mitigation: The lender’s department that handles short sales and other workout options

• HUD or settlement statement: An itemized list of closing costs and who pays what

Your next step