If you're trying to avoid a damaging foreclosure on your credit report, you might be considering a short sale. In this article, learn more about the short sale process, how you might be eligible to use the short sale process, and how a short sale attorney could help you through the process. Also, find out some of the pros and cons to hiring a short sale attorney so you can determine if using one might be beneficial to you.
Written by Attorney Serena Siew.
Updated October 6, 2021
A short sale attorney can help you negotiate with lenders, realtors, real estate lawyers, and the bank to make a sale happen successfully. Unlike real estate agents, short sale lawyers can provide legal advice about your best options and sort through confusing financial documents. They can also provide legal representation in court if you’re fighting foreclosure at the same time. They may also help you avoid short sale scams.
Although most law offices offer a free consultation, the drawback of hiring a short sale attorney is the cost. You’ll want to weigh that against the time (and stress) you’d have to spend getting through the process yourself. This article explains short sales and weighs the pros and cons of getting an attorney so you can decide whether hiring a short sales lawyer is the best option for you.
According to the Consumer Financial Protection Bureau (CFPB), over 2 million homeowners in the U.S. today are facing foreclosure. Most of them were placed in this position after falling behind on mortgage payments. This will negatively impact their credit scores. But they may be able to avoid foreclosure, which is even more damaging to their credit than missing payments. Short sales offer a less credit-crushing alternative to foreclosure.
A short sale occurs when a home is sold for less than the amount owed on the mortgage. Believe it or not, you’re not the only one dreading foreclosure. It’s a costly process for banks and mortgage holders, too. Lenders and banks also favor short sales over the more rocky—and risky—foreclosure process. That’s good news for homeowners.
Proving Financial Hardship
To get a short sale approved, mortgage lenders often require a “hardship letter” explaining the borrower’s current financial situation and supporting documents to confirm it. Common sources of financial hardship include:
Change in marital status
Expensive medical costs
The source of financial hardship must have been caused by something beyond your control, and you’ll want to explain what efforts you’ve made to keep up with mortgage payments despite these challenges. Proof of financial hardship can include:
W-2s, W-4s, 1099s
Most recent pay stubs
Other Requirements for a Short Sale
Lenders have additional conditions you’ll have to meet before they will agree to a short sale. You'll want to check with your lending bank to learn about its eligibility requirements before applying. When submitting a short sale application with an offer (which generally requires you to have a prospective buyer in place), hardship is not enough. Some lenders will also require:
A property assessment (to determine your home’s value), and
The sale price of similar homes in the neighborhood
Lenders will look at the financial pros and cons of going through the process of foreclosure versus a short sale. Lenders want to make sure they’ll still lose money even if they auctioned your house at fair market value. They’ll weigh this loss against the cost of suing you personally if the foreclosure doesn’t bring in enough money. Mortgage holders can always try to recover the deficiency balance in court. But, if they’re unlikely to recover the money judgment against you, getting the current value of a property sold “short” is preferable to nothing.
It can take lenders two to three months to approve a short sale. But the process doesn’t end there. During escrow, the bank may decide to negotiate with the buyer, which can extend the short sale timeline. In all, the process could take 4-6 months from start to finish. A short sale attorney could help speed things up.
Hiring a Short Sale Attorney
A short sale lawyer is different from a real estate agent. Real estate agents can help you find buyers and sell your house. But they can’t give you legal advice or represent your legal interests in a short sale. Many realtors aren’t even familiar with the process. A short sale attorney can negotiate with all the parties necessary to navigate the process successfully.
In addition to helping get short sale approval, short sale lawyers can continue negotiating with the lender to accept a lower price than what’s owed on the mortgage. They can also talk to the bank to ensure that all the paperwork is done correctly and to catch any disclaimers. Short sale transactions actually involve many other interested parties, such as:
Junior lien holders
Real estate brokers
Real estate lawyers
Knowing how to deal with these folks can reduce the amount of time it takes to finish a short sale. An added bonus is that you also won’t have to deal with the stress or the work of making it happen. That’s the attorney’s job.
You can interview multiple attorneys to figure out whose approach works best for you. Many real estate law firms offer free consultations. You can begin by asking if the firm can help you get the lender to:
Pay for some fees (commissions, closing, title costs)
Offer better terms in the short sale agreement
Release you from future financial obligations
Agree not to foreclose or pursue a deficiency judgment
You can also explore other debt relief options, like bankruptcy, and see what the lawyer recommends you should do. If the attorney answers your legal questions and you decide to hire the firm, confirm the cost and fees before committing to entering into an attorney-client relationship. You’ll want to avoid a disagreement about billing after all is said and done.
Before signing, read over the contract to understand what responsibilities the lawyer will and won’t assume regarding your short sale. Lawyers can’t make guarantees, but they can (and should) use their experience to get the best results in your case. The attorney-client relationship also binds the attorney to keep all your communication private.
Pros and Cons of Hiring a Short Sale Attorney
Remember that you don’t need to hire an attorney. You might be able to complete the short sale yourself. But just as you’d hire a plumber to fix a clog or an accountant to file your taxes, having a legal advocate can make the process work more smoothly. A lawyer can be really helpful if:
The bank is moving forward with the foreclosure at the same time you’re working toward a short sale
You think you have a good foreclosure defense (i.e., lack of notice, summons)
You don’t know what to expect in terms of negotiation, paperwork, and timing
You don’t qualify for a short sale and need to know other available options
The idea of handling this process on your own is too overwhelming or unmanageable
Experienced short sale lawyers can save you the stress of dealing with lengthy negotiations and paperwork. The only downside is the cost. If you’re in real mortgage debt, you may not want to get into any more. But during many short sales, lenders agree to cover “reasonable attorney fees” so it may be worth the extra expense.
Short sales are a good option for some people who are eager to avoid foreclosure. Missed mortgage payments can lower your credit score and a foreclosure can stay on your credit report for up to seven years. If you’re facing serious financial hardship, you may want help getting lenders to accept less money than what you owe on your mortgage. If you don’t want the headache of dealing with banks, realtors, mortgage insurers, and title companies, working with an attorney can make the whole short sale process run more smoothly.