12 Key Steps in the Short Sale Process

For Massachusetts real estate agents, short sales can be complex because they involve both the seller and the lender(s). Here are the most important points to understand and communicate to your clients.

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1. Lender Approval Is Required

A short sale is not complete until the lender approves it. Even if the seller accepts an offer, the lender can:

• Approve the sale
• Counter the terms
• Reject the sale

Agents should clearly disclose that all terms are subject to lender approval.

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2. Understand the Seller's Hardship

Lenders typically require proof of financial hardship, such as:

• Job loss
• Divorce
• Death of a spouse
• Medical issues
• Significant income reduction

The seller will usually need to provide financial documentation and a hardship letter.

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3. Price the Property Realistically

Lenders order their own valuation, often through:

• A Broker Price Opinion (BPO)
• An appraisal

Overpricing can delay approval, while underpricing may be rejected by the lender.

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4. Know Who Owns the Loan

Determine whether the mortgage is owned or backed by:

• Fannie Mae
• Freddie Mac
• FHA
• VA
• Private investors

Each has different short-sale guidelines and timelines.

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5. Obtain Written Authorization

Have the seller sign an authorization allowing you to communicate directly with:

• The lender
• Loss mitigation department
• Attorneys
• Servicers

Without authorization, lenders generally won't discuss the file.

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6. Watch for Multiple Liens

Many short sales involve:

• First mortgages
• Second mortgages
• HELOCs
• Tax liens
• HOA liens
• Judgment liens

Every lienholder may need to approve the transaction.

9. Expect Longer Timelines

• 60–120+ days
• Sometimes longer if multiple lienholders are involved

Buyers should be prepared for delays and uncertainty.

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10. Use Appropriate Contract Language

• Short-sale contingency language
• Lender approval contingency
• Extended response timelines

Consult with the closing attorney regarding proper language.

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11. Maintain Communication

Successful short sales require consistent follow-up with:

• Loss mitigation representatives
• Attorneys
• Negotiators
• Buyers' agents

Many delays occur simply because documentation expires or requests go unanswered.

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12. Commission Approval

The lender ultimately approves the commission being paid through the short sale.

• The listing agreement may state one amount.
• The lender may approve a different amount.

Agents should understand this before accepting the assignment.