Behind on Mortgage Payments? Short Sales Guide for Homeowners and Agents

Intro: You have more options than you think 0:00 Being behind on payments on your 0:01 mortgage doesn't mean you run out of 0:03 options. And if that's where you're at 0:05 right now, you're in the right place 0:06 here. A short sale is a path that most 0:09 homeowners aren't even told about. But 0:11 by the end of this video, you'll 0:13 understand what a short sale actually 0:15 is, how it works, and whether it might 0:17 be best for you in your situation. 0:19 I'm Jim Armstrong. I'm a licensed 0:21 realtor in Jacksonville, Florida with 0:23 Momentum Realy, and I'm a certified 0:25 short sale and foreclosure resource. 0:27 That's the SFR certification from the 0:29 National Association of Realtors. Short What a short sale actually is 0:32 sales are something most agents don't 0:34 specialize in, but this is what me and 0:36 my partners focus on every day. While 0:39 I'm licensed in Florida, the principles 0:41 I'm about to discuss with you in this 0:42 video apply across the nation, wherever 0:44 state you live in. Let's take a look. 0:48 A short sale is when the lender agrees 0:50 to accept less than what you owe on the 0:52 mortgage so that you can sell your 0:54 house. 0:55 It's called a short sale because it 0:57 comes up short of the loan balance. 1:00 And most important, the thing to 1:02 understand right out of the gate is that 1:04 the lender has to approve it. This isn't 1:07 something you can just decide to do on 1:08 your own. So, here's a simple example. 1:10 If you owe, say, $300,000 on your home 1:13 and your home's actually in worth about The 7-step short sale process 1:15 $250,000 in today's market, a short sale 1:18 would mean the lender would accept the 1:20 $250,000 sales price and either forgive 1:23 or restructure the $50,000 difference. 1:27 So, how does that actually work? The 1:29 short sale process has a clear sequence 1:31 to it, and understanding that sequence 1:33 helps you understand why timing matters 1:35 so much. Step one, the homeowner reaches 1:38 a point where they can no longer make 1:39 their mortgage payments or they're 1:40 underwater, meaning they owe more than 1:42 the home's actually worth. Step two is 1:46 the homeowner has a conversation with 1:47 their lender. That conversation requires 1:50 hardship documentation like financial 1:52 statements, hardship letters, and other 1:55 supporting evidence of what's actually 1:56 going on in your financial life. 1:59 Step three, the home gets listed for 2:01 sale. And I'm going to tell you upfront 2:03 what I'm walking you through is an 2:05 oversimplified version right here. 2:07 There's more going on under the hood. 2:09 But the core thing that you need to 2:11 understand is this. The home is listed 2:14 at fair market value, not at a discount, 2:17 not at what's owed on it. It's at what 2:20 the market actually supports right now. 2:23 The lender wants to see the price 2:24 reflect reality. 2:26 Now, here's where the timeline gets 2:28 unpredictable. 2:29 The home might sit on the market for 2:31 weeks or even months before ever having 2:34 an offer come in. It might need price 2:37 reductions along the way just like other 2:38 listings, especially in this market 2:40 today. Or an offer could come in fairly 2:43 quickly. Either way, the home has to act 2:46 be actively marketed and exposed to 2:48 buyers. That's part of what the lender 2:50 wants to see. Step four, somewhere in 2:53 this process, sometimes before the offer 2:56 comes, sometimes after, the lender will 2:58 order a property valuation. This is 3:00 usually a broker price opinion or a BO, 3:05 but sometimes a full appraisal. A BO is 3:08 a real estate professional's opinion of 3:10 what the property is actually worth. 3:12 It's similar to an appraisal, but it's 3:14 faster and a lot less formal. And the 3:17 lender uses it to verify the list price 3:19 and any offers on the table. 3:22 Step five, when a buyer makes an offer, 3:25 that offer goes to the lender for 3:27 approval. 3:28 Every party, the homeowner, the buyer, Dual tracking: why the foreclosure clock keeps ticking 3:32 the buyer's agent, everybody knows 3:34 upfront that the final decision rests 3:36 with the lender. The lender's loss 3:38 mitigation department takes over from 3:40 there. Loss mitigation is the department 3:42 inside the lender whose job is to 3:44 minimize the lender's loss when a 3:47 borrower can't pay. They review the 3:49 offer. They review the homeowner's 3:51 hardship package and then they look at 3:53 the BO and then they make a decision. So 3:57 then comes the sixth step. The lender 3:59 either approves the offer, counters at a Do you qualify? What lenders actually look for 4:02 higher number or denies it. Most lenders 4:05 will work towards approval because 4:07 foreclosure is more expensive for them 4:09 than the short sale. And we'll get into 4:11 those numbers in a minute. Step seven, 4:14 the sale closes. The lender releases the 4:16 lean on the property and the homeowner 4:18 walks away. Now, here's something I want 4:21 you to understand about timing. While 4:23 all this is happening, the foreclosure 4:25 clock keeps on ticking in the 4:27 background. This is called dual 4:29 tracking. The lender is processing your 4:32 short sale at the same time that the 4:34 foreclosure process is moving forward. 4:37 Most lenders will pause or stop the 4:38 foreclosure once the short sale is 4:40 approved, but that's not automatic, and 4:43 it's something a specialist will track 4:45 for you. The whole approval process can 4:48 take 30 to 90 days, sometimes longer. 4:51 That's normal. It's not a sign that 4:53 something's wrong. As Mark Xandy, chief 4:55 economist at Moody's Analytics, recently 4:57 noted, FHA borrowers are showing 4:59 mounting financial stress even with 5:02 unemployment at 4%. The reasons include 5:05 high debt to income ratios, elevated 5:07 insurance, and property taxes, and 5:09 homeowners who, in his words, gambled 5:12 that rates would fall and could 5:13 refinance later. Why short sales aren't the only option 5:15 That's the kind of situation where the 5:17 short sale becomes the right tool when 5:19 the math no longer works on the original 5:21 loan. So, that brings us to the question 5:24 most often asked. Do I qualify? Here's 5:27 what the lender's looking at. First, 5:30 documented hardship. And the list of 5:32 what counts as hardship is broader than 5:34 what most people realize. It can be job 5:37 loss, a layoff, a position eliminated, 5:40 hours cut. It could be medical issues, a 5:42 sudden diagnosis, ongoing treatment 5:45 costs, time off to care for a family 5:47 member. It can be divorce where one 5:49 income suddenly has to cover a payment 5:51 that two incomes were once making. It 5:53 can be death of someone in the family 5:55 who was contributing to the mortgage. It 5:57 can be military relocation where you've 5:59 gotten PCS orders and you can't take the How lenders think about approval (and the 40% loss number) 6:01 house with you. It can be a business 6:03 failure if you're self-employed and your 6:05 business stops producing. It can even be 6:08 increased insurance costs and property 6:10 taxes, especially in places like Florida 6:12 where those numbers have been climbing 6:14 fast. The list is broader than most 6:16 people realize. Second, the lender looks 6:19 at your inability to keep up with the 6:21 current mortgage payment. We talked 6:23 about that earlier when the math no 6:24 longer works. Third, they look at the 6:27 home being worth less than what is owed 6:29 or close to it after closing costs. And 6:31 fourth, they look at whether the buyer 6:33 is willing to make a fair market offer. 6:35 Now, here's the most important thing I'm 6:37 going to tell you in this whole entire 6:39 video. Short sales aren't the only path 6:42 forward. If your situation doesn't fit a 6:45 short sale, there are other options. A 6:48 traditional sale if you have the equity, 6:50 a loan modification with your serer, 6:53 forbearance arrangements, deed in l of 6:55 foreclosure, and others. The point is, 6:58 every situation is different, and the 7:00 worst thing you can do is assume you 7:02 don't qualify and stop looking for a way 7:04 out. The reason I offer a no obligation 7:06 strategy is exactly because of this. I 7:09 help you find the options to figure out 7:11 what you actually qualify for, not what 7:13 you think you don't qualify for. If 7:16 you're behind on payments and you're not 7:17 sure where you stand, that's the 7:19 conversation to have. Email me at jim 7:22 armstrong94gmail.com 7:24 and we'll set up a strategy session. 7:26 It's free, takes about 30 minutes. 7:28 There's no obligation. And if you'd Credit impact: short sale vs foreclosure waiting periods 7:30 rather text me to set it up, just 7:32 include your phone number in that 7:33 initial email and I'll personally text 7:35 you back. Now, I want to give you a peak 7:37 behind the curtain at how lenders 7:39 actually think about this. Lenders are 7:42 not obligated to approve a short sale, 7:44 but they have strong financial reasons 7:46 to consider one. Here's why. Foreclosure 7:50 is expensive for the lender. attorney 7:52 costs, court cost, property maintenance 7:55 while the home sits empty, marketing 7:56 exposure while they have to sell it 7:58 themselves, and time on the books. Every 8:00 month a non-performing loan sits on a 8:02 lender's balance sheet, it's costing 8:04 them money. How expensive? According to 8:06 a paper from the Federal Reserve Bank of 8:08 Philadelphia, Fanny May and Freddy Mack 8:11 have been losing around 40% of loans 8:13 values when properties go through 8:14 foreclosure in recent years. During the 8:18 housing crisis, it spiked as high as 8:20 48%. Before 2007, it was under 20%. 8:24 So, we're talking about a lender 8:26 potentially losing close to half of what 8:28 they lent on the property if they take 8:30 it all the way to foreclosure. 8:32 A short sale typically nets the lender 8:34 more money in less time than a 8:35 foreclosure. That's the calculus that 8:38 makes them willing to participate. Now, 8:40 the approval process can take 30 to 90 8:42 days, sometimes longer. I said that 8:44 earlier and I want to repeat it because 8:46 it's important. That's normal. It's not 8:48 a sign something's wrong. It's just how 8:51 loss mitigation departments work. And 8:53 that's why working with someone who 8:55 specializes in short sales actually 8:57 matters. Most agents have done one, Fannie/Freddie, FHA, and VA loan timelines 9:00 maybe two in their entire career. SFR 9:03 certified specialists do these things on 9:04 the regular. We know the forms. We know 9:07 the timelines. We know the lender 9:09 quirks. And we know how to keep the file 9:11 moving. According to recent reporting 9:13 from the Wall Street Journal, the recent 9:15 jump in home foreclosures is being 9:17 driven in part by changes in the federal 9:19 mortgage subsidy rules. This means more 9:22 homeowners are being pushed into the 9:24 foreclosure pipeline who in many cases 9:27 would qualify for a short sale instead. 9:30 The need is real and it's growing. Now, 9:32 let's talk about two things almost every 9:34 homeowner asks about credit and taxes. 9:37 On credit, a short sale will impact your 9:40 credit score. There's no way around it, 9:43 but typically that impact is less severe 9:45 than a foreclosure. Recovery time is 9:48 generally faster, and future mortgage 9:50 eligibility timelines are often shorter 9:52 after a short sale than a foreclosure. 9:54 Here's what those timelines actually 9:56 look like, and these come straight from 9:58 the official guidelines published by the 9:59 loan agencies themselves. If you have a The 2026 tax law change you need to know about 10:02 Fanny May or Freddy Mack conventional 10:03 loan, the waiting period after a short 10:05 sale is four years before you can 10:07 finance another home purchase. That can 10:09 drop to two years if you have 10:10 extenduating circumstances. 10:13 After a foreclosure on a Fanny or Freddy 10:15 loan, you're looking at 7 years or 3 10:18 years with extenduating circumstances. 10:20 So, a short sale gets you back into home 10:23 ownership 3 to four years faster. If you 10:25 have an FHA loan, the waiting period 10:27 after a short sale is 3 years with some 10:29 exceptions. After an FHA foreclosure, 10:32 it's also three years with one year 10:34 possible under extenduating 10:36 circumstances. So, the timelines are 10:38 similar here, but the path back is 10:40 generally smoother after a short sale. 10:42 If you have a VA loan, this one's 10:44 important. There's no specific waiting 10:46 period after a short sale. None. 10:49 After a VA foreclosure, you're looking 10:51 at two years or one with extenduating 10:54 circumstances. 10:56 Now, if you're a veteran with a VA loan 10:58 or you have a FHA loan, the rules around Summary and next steps 11:01 your specific future eligibility can be 11:03 more nuanced and they can change. I 11:06 always recommend that you confirm your 11:07 future eligibility directly with a VA 11:09 approved or FHA approved lender. That's 11:12 their lane to advise on, not mine. On 11:15 taxes, the forgiven portion of the loan 11:17 can sometimes be treated as taxable 11:19 income by the IRS. You may receive a 11:22 form 1099 C for the cancellation of 11:24 debt. Here's what's changed recently, 11:27 and you need to hear this clearly. The 11:29 Mortgage Forgiveness Debt Relief Act, 11:31 the federal law that protected 11:32 homeowners from being taxed on forgiven 11:35 mortgage debt on a primary residents, 11:37 expired on January 1st, 2026. 11:41 There is no general federal exclusion in 11:44 place right now for forgiven mortgage 11:46 debt going forward. There is a pending 11:49 bill to reinstate it, but as of the time 11:51 of this recording, it has not passed. 11:54 That doesn't mean you'll automatically 11:56 owe tax. There are other exclusions that 11:58 may still apply. The biggest one is the 12:01 insolveny exclusion. If your total debts 12:04 exceed your total assets at the time the 12:06 debt is forgiven, you may be able to 12:08 exclude some or all of the forgiven debt 12:10 from your taxable income. That's a 12:13 calculation a tax professional has to 12:14 walk you through. This is exactly the 12:17 kind of question you bring to a CPA or a 12:19 tax attorney. Every situation is 12:21 different and I'm not the right person 12:22 to give you tax advice, but a qualified 12:25 tax professional can walk you through 12:27 what applies to you specifically. 12:30 So, if you're a homeowner who's behind 12:31 on payments or you can see it coming, 12:33 the smartest thing you can do is start 12:35 taking action now. Time is one of your 12:37 assets in this process. The earlier you 12:40 take action, the more options stay on 12:42 the table for you. The longer you wait, 12:44 the more of those options start coming 12:45 off the table, one by one. Email me at 12:50 jimmstrong94gmail.com 12:53 and we'll set up a strategy session. 12:54 It's free. Takes about 30 minutes, no 12:57 obligation. And even if you're outside 12:59 the state of Florida, I can connect you 13:00 with an SFR certified agent in your 13:02 state who can help you out. If you're a 13:05 real estate agent and you've got a 13:06 client in a distressed property 13:07 situation and short sales aren't your 13:09 specialty, that's normal. Most agents 13:12 don't focus on them. Reach out and we 13:14 can talk through the situation and 13:16 figure out what best way to help your 13:18 client. Same email, jimmstrong 13:20 904@gmail.com. 13:23 If you're an investor looking at 13:24 distressed properties as an acquisition 13:26 strategy, short sales can offer some of 13:28 the cleanest pass the title because a 13:30 lender is participating in the sale. I 13:33 work with investors on these often. 13:35 Happy to talk to you about what's 13:36 available. Same email, 13:38 jimmstrong94@gmail.com. 13:41 Whatever situation you're in, the first 13:42 step is the same. Send an email and 13:45 we'll set up a time to talk. So, in 13:48 summary, a short sale is a legitimate 13:50 option for homeowners who are behind on 13:52 payments. It's not the last resort. It's 13:55 a tool. And whether it's right for you 13:57 depends on your specific situation. 13:59 That's exactly what the strategy session 14:01 is for. Thanks for watching. I hope this 14:04 was helpful to you. And if you know 14:06 anyone else in this situation, the best 14:08 thing you can do for them is share this 14:10 video. Thanks.