A short sale is a work out program that allows a customer to sell a home for less than the total amount owed, and is most commonly used to avoid foreclosure. However, employees who are accepting a job transfer may need to consider this option if they are unable to sell their home for the total amount owed.

A short sale can also be understood as an agreement between a borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender. It is an alternative to foreclosure, or a deed in lieu of foreclosure.

Example: If the unpaid balance of a mortgage is $100,000 and the property value or purchase offer is only $90,000, then under a short sale the lender accepts $90,000 as the payoff for the $100,000 loan.

Short sales can be complex and time-consuming, especially if there is more than one mortgage on the property. Transferees who are interested in a short sale should contact their lender as soon as possible.

Transferees who can objectively demonstrate that the fair market value of their home is less than the unpaid balance of the loan may be eligible candidates for a short sale. Also, transferees who can prove they are facing a legitimate hardship situation that hinders their ability to continue making payments on their mortgage may be eligible candidates for a short sale. A few common examples of such hardship situations are unemployment, bankruptcy, death of a spouse, inability to work due to a health crisis, and a divorce or separation. A relocation connected with employment is also a hardship situation that might qualify a borrower to apply for a short sale.

Transferees considering a short sale must keep in mind that negotiating a short sale with their lender could be a lengthy process and will vary by lender. To remain eligible for the NOAA home sale program, a short sale must be negotiated and approved with the lender prior to the expiration of the Appraised Value offer.

Example: Date appraised value offer received + 60 days = Offer expiration date

Transferees interested in a short sale should consult their financial advisor and/or a tax attorney to determine any tax implications, as well as the impact on one’s credit and ability to purchase a new home. Short sales may have to be reported to the credit bureaus, which can have an impact upon one’s credit reports and scores.

Transferees must assume the primary role in initiating and managing a short sale process. Neither Prudential Relocation nor NOAA manages short sales. Furthermore, the Privacy Act prohibits Prudential and NOAA involvement in the short sale process.

Lenders have different short sale procedures. It is difficult to generalize about the process across all lenders. Consequently Prudential cannot give advice on the short sale process. When there is both a first and second mortgage, there may be two different investors, and both have to agree to the short sale.

The lender may require a letter of explanation outlining the hardship circumstances, proof of the borrower’s current financial condition, or a formal appraisal of the property to determine its current fair market value. If you have reached an agreement to sell your home to a prospective buyer, the lender will want a copy of the purchase offer, the listing agreement, and other related sales documentation. A purchase offer (buyout offer) from Prudential Relocation would be equivalent to a purchase offer from a prospective buyer.

Note that the successful completion of a short sale with a lender may likely have an impact upon the transferee’s ability to purchase another home. Someone who has gone through a short sale process may not be able to purchase a home again for up to 24 months, depending upon how the short sale was reported to the credit bureau.