Short Sale Package
The complete application to sell the home for less than the mortgage balance — the alternative to foreclosure that requires lender approval.
A Short Sale Package is the complete set of documents a homeowner submits to the servicer to request approval of a short sale — selling the property for less than the mortgage balance, with the lender accepting the shortfall. The package typically includes: purchase contract (executed by buyer and seller), HUD-1 Settlement Statement (or estimated closing statement), Hardship Affidavit, Financial Worksheet, 2 years of tax returns, 2 months of bank statements and pay stubs, listing history (how long on market, price reductions), Broker Price Opinion or Broker's Opinion of Value, and an Arm's-Length Affidavit certifying that the transaction is at arm's length (not a sale to a relative or straw buyer). Short sales are loss mitigation alternatives for homeowners who: (1) owe more than the home is worth, (2) cannot afford any type of modification or repayment plan, and (3) wish to avoid a foreclosure on their credit. Short sales take 3-6 months for lender review and are not guaranteed — the lender can reject any offer.
Purpose
- 1Submit a complete short sale application for lender review and approval
- 2Provide evidence that the sale price is at current market value
- 3Demonstrate the homeowner's inability to retain the home through other loss mitigation options
- 4Document the arm's-length nature of the transaction
Who Prepares It
The homeowner (with a real estate agent experienced in short sales) assembles the package. The servicer reviews and approves or denies. A real estate agent, attorney, or short sale negotiator is strongly recommended.
When It Is Used
When the homeowner: (1) owes more than the property value, (2) has an executed purchase contract, (3) cannot retain the home through modification/repayment/forbearance, and (4) wants to avoid foreclosure (short sales are less damaging to credit than foreclosures).
Legal Effect
Lender approval of a short sale is NOT a guarantee of a deficiency waiver — the lender may still pursue a deficiency judgment (difference between the loan balance and the short sale price). This is the critical issue: will the lender waive the right to pursue a deficiency? The approval letter must specify: (1) whether the lender accepts the sale proceeds as full satisfaction of the debt, (2) whether the lender waives its right to a deficiency judgment, (3) whether the lender will issue a Form 1099-C (cancellation of debt — may be taxable income), and (4) what, if anything, the homeowner must contribute (cash contribution, promissory note).
Common Mistakes
Homeowner Rights
Other Loan Modification & Loss Mitigation Documents
Loan Modification Agreement
The binding contract that permanently changes the terms of your mortgage — lower rate, extended term, principal forbearance, or other relief.
Borrower Assistance Package
The complete set of documents required by the servicer for a loss mitigation review — also called a Complete Loss Mitigation Application (CLMA).
Loss Mitigation Application (Uniform Borrower Assistance Form)
The standardized application form (Form 710) used to apply for mortgage assistance — the gateway document for all loss mitigation options.
Forbearance Agreement
A temporary agreement to reduce or suspend mortgage payments — distinct from a permanent modification and with important conditions at the end.
Repayment Plan
An agreement to catch up on missed payments by paying extra each month — spreading the arrears over time without changing the underlying loan.
Partial Claim Agreement (FHA)
The FHA loss mitigation option that uses HUD funds to pay arrears as a junior lien — available only for FHA-insured loans.
Deed in Lieu of Foreclosure Package
The application to voluntarily transfer the property title to the lender — avoiding a formal foreclosure process.
Foreclosure Mediation Packet
The comprehensive document package submitted for mandatory or voluntary foreclosure mediation — preparing this well can save your home.
Frequently Asked Questions
Will a short sale hurt my credit less than a foreclosure?▼
Generally, yes. A short sale typically drops your credit score 85-160 points (reported as 'settled for less than full balance'). A foreclosure drops it 150-250+ points. Additionally, short sales allow you to buy a home again sooner: typically 2-4 years (depending on loan type and down payment) vs. 3-7 years for foreclosure. However, the credit impact varies significantly by individual borrower and credit bureau algorithm.
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