How much of a loss is required for a short sale?

I couldn't find any info on the Internet about just how big or small a loss needs to be to qualify for a short sale.  We need to sell our house and the loss will be under $25,000. Do lenders approve short sales for such a small amount?

Here's the situation:
My husband has taken a job transfer. We move at the end of the summer. We purchased our current home (in Texas) just over a year ago.  Home prices have dropped a little, so our list price would probably be right around what we owe on the mortgage ($260,000).  With closing costs around 2.5% and realtor commissions at 6%, that's around $22,000 we'd be short.   

Do lenders do short sales for such a small amount? If so, would they more likely forgive the debt altogether or ask for repayment? 

We plan to rent in our new location, so the hit to our credit would not be as great as it would be if we were looking to purchase. Our mortgage is with Wells Fargo. 
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April 28 2012 - US
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Answers (5)

Owner,
I do NOT know of any lender who forgives debt gladly. Would you? :-)

I suggest that you contact your lender and explain your situation to them. However, I can tell you that you will need to prove a financial hardship for the lender to approve the short sale. 

Judging by the information you gave here, most of your shortfall would come from the commission you'd have to pay to the listing and selling brokers. Would you be willing and able to sell the house on your own as a FSBO, For Sale By Owner?  Selling a house as a FSBO is not for the faint-hearted, but it can be done.

If you go the short-sale route, you will not be able to purchase a home for 2-3 years as your credit will be affected negatively. Some lenders do reserve the right to file a deficiency judgment against the seller for the difference - you need to READ all the short sale documents very thoroughly before you sign anything and consult with the lawyer if necessary.

If you do decide to hire an agent, look for someone with CDPE designation as they are trained to do short sales.
   
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May 10 2012

The short sale hotline for help here in Colorado is 1-877-601-4673.  There is probably a hotline in your state. The Colorado hotline might know what it is.
  Even if they can't help, it might be worth a call to see what ideas they might have.
Good Luck to You,

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May 10 2012
I agree with Greg and Suzie. You must show a hardship or reason to need to short sale.

Job transfers are one of the top reasons to short sale in my market (San Diego). You should speak to an experienced short sale agent in your area to discuss your specific scenario and go into further details.

Also consider the impact to your credit and your ability to purchase a home in the near future.

And finally if a short sale does not seem to be feasible for whatever reason consider the costs of keeping your home as a rental. If it cash flows this might be a great alternative to shortselling or foreclosure.


Best of Luck!
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May 10 2012
There is no set amount required to make it a short sale. It does help if there is only 1 lender to work with, or if there are 2 then if they are from the same bank it's a little easier.

There definetly needs to be some sort of hardship or else they will not approve it. Depending on what state you live in, the lender may or may not be able to come after you for a deficiency. I'm not sure what the TX laws are. In CA for example, they are not able to come after you if it's owner occupied. The credit impact isn't too terrible...it shows as a settled debt, and would only prevent you from buying again for 2 years with a loan.
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April 28 2012
Great questions.Yes, many short sales are for small amounts.

 Here is my understanding to be approved for a short sale:

You need to have an approved hardship for them to consider a short sale. Your husband's job transfer may be adequate.
You will need to show that you can not financially make up the difference. That requires you to expose all your finances, retirement accounts, etc...
You can begin the process prior to listing your house for sale. Most lenders have departments that are dedicated to this process and will help you. Many times with primary residence short sales, the debt is forgiven but you can negotiate that issue throughout the transaction.

When you list the house, look for a Realtor who has gone through training to be a short sale specialist. There are many attorneys who can help you as well. Don't worry too much about the credit hit. It may not be as much as you think. 

Good luck with it all. 

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April 28 2012
 
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