If you're thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: 

• Refinancing your loan at a lower interest rate
• Providing a different payment plan to help you get caught up
• Providing a forbearance period if your situation is temporary 

When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if 

• Your property is worth less than the total mortgage you owe on it.
• You have a financial hardship, such as a job loss or major medical bills.
• You have contacted your lender and it is willing to entertain a short sale. 

2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional* and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won't try to take advantage of your situation or pressure you to do something that isn't in your best interest. 

A qualified real estate professional can: 

• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold.
• Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
• Ease the process of working with your lender or lenders.
• Negotiate the contract with the buyers.
• Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title. 

3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include 

• A hardship letter detailing your financial situation and why you need the short sale
• A copy of the purchase contract and listing agreement
• Proof of your income and assets
• Copies of your federal income tax returns for the past two years 

4. Prepare buyers for a lengthy waiting period. Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say: 

• If you have only one mortgage, the review can take about two months.
• With a first and second mortgage with the same lender, the review can take about three months.
• With two or more mortgages with different lenders, it can take four months or longer. 

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.) 

5. Don't expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind: 

• You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
• Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify. 
• Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

A short sale is the sale of a home in which the amount owed to the lender(s) is more than the amount that the home can be sold for. Instead of the home owner having to bring in money to complete the sale, the sale is completed through negotiations with the existing lender(s) and the lender(s) agree to accept less than the full amount owed to satisfy the debt and allow it to be paid off “short.”

 A short sale is a real estate transaction that requires an approval from the lender. It’s not some complicated legal process that requires paying an attorney.

 Short sales are different than a regular real estate transaction because once you stop making your mortgage payments, the clock starts ticking and you’ll get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, or simply doesn’t know how to negotiate with the banks, you’ll wind up being foreclosed on.

 A foreclosure will devastate your credit. Your credit score can be lowered by as much as 300 – 400 points and you’ll be hounded day and night by your lender. Even worse, you’ll have difficulty getting credit cards, auto loans or even renting a home or an apartment for the next 7 years.

 Your lender does not want to foreclose on your home.

It’s true. They would much rather have you stay in your home and continue making your payments, or have you sell it and get it off their books, even if it requires them taking a financial loss. Remember, banks are in the lending business, not the real estate business, which brings me to my next point:

It makes absolutely zero difference whether your lender is Indymac, Wells Fargo, Chase, Countrywide / Bank of America, Downey Savings, CITI, Chevy Chase, Washington Mutual, Wachovia, World Savings, First Franklin, Flagstar, GMAC, Greenpoint, Homecomings, HSBC, Irwin, Novastar, Option One, Aurora, Deutsche Bank…

I've worked with them all and they all work the same – if you submit a sensible offer and a clean package and have the systems and resources in place to consistently and continuously follow up on the file, it will get accepted and your home will be sold “short.” You’ll pay nothing. You’ll owe nothing. You’ll avoid having a foreclosure on your credit report and you’ll survive to fight another day!

Here are eight reasons to hire a Real Estate Professional to help you find a home and negotiate your transactions to successful closing.

1.  Real estate professionals are market specialists.  No matter where you live, your housing market favors either sellers or buyers.  Your agent will help you prepare your home to sell for the highest possible amount and educate you about the current market conditions.  If you are looking for another home, your agent will help you with your new home.

2.  Real Estate professionals are neighborhood experts.  While they are licensed to sell and manage real estate anywhere in the state, most real estate professionals wisely limit themselves to certain neighborhoods or types of homes such as new homes or condominiums.  If you've never sold a home before, your agent can help you understand the selling process, including your responsibilities and those of the buyer.

3.  Real estate professionals have more information about homes than you do.  While it's fun to drive through neighborhoods and pop into open houses to see what your home may be competing against, you may not realize there is a vast amount of informaiton about homes that may not be available to you unless you are working with your own agent.  For example, some homes are sold without ever going into the local multiple listing service (MLS).  If you don't know about them, how can you use them to help you determine the asking price of your home?

4.  Real estate professionals save you time.  If you want to sell your home quickly, put an agent to work for you.  Over 85 percent of homes for sale in the United States are represented by agents.  An agent acting as your listing agant (an agent who takes information about your home, packages it as a "listing" for their brokerage, and also enters it into the MLS and in advertising media to home buyers) is committed to getting you the best price and terms possible.

5.  Real estate professionals can work with you athe way you want to work.  If you were in court, you'd want a good attorney by your side.  As a seller, you also want an advocate.  You can hire an agent as your exclusive fiduciary, which means he or she can't represent the buyer at the same time.  Or you can hire a transactional broker who can handle both sides of the transaction with out fiduciary preference to either side.  While these agents are frequently paid on the back end of the transaction at closing, you can also hire an agent to perform certain tasks for an up-front fee, such as creating a comparable analysis for you, helping you with negotiations, or helping you find your next home.

6.  Real estate professionals share your risk.  With an agent by your side, you'll be less likely to make uninformed decisions because you'll know what issues you should consider carefully and why.  All houses are imperfect, but some are more imperfect than others.  While real estate agents don't tke the place of home inspectors or contractors, they can certainly tell you what it will take to bring your home up to the market's standards and to help you with your disclosures to the buyer.

7.  Real estate professionals work to protect you from unqualified buyers.  While some buyers try to buy homes behond their means, lenders and buyers' agents work to make sure that buyers know what they can afford and what range of homes they should be considering.

8.  Real estate professionals know how to close a deal.  Putting a home into the local MLS is the easy part.  Getting the transaction to clsoing is the challenge, as so many factors can derail a home's sale, from makret conditions to problems buyers may have in qualifying for your home due to rising interest rates, or problems selling their home so thay can buy yours.  Homeowner's insurance companies that withdraw from certain markets due to mold or damage from natural disasters cut new buyers off without warning (as recently happened in California and Texas).  Inspection reports may reveal big problems you didn't know you had with your home.  An agent will know exactly whom to call and what to do to solve any issue that threatens to keep the sale from moving toward closing.

Buyers and sellers share the same ultimate goal but have different priorities for achieving it.  You want the most money and the best terms, while the buyer wants your home for the least amount of money and the best terms.  It takes a skilled negotiator to keep the transaction moving forward.