Q:

What are the basic rules for short selling a house?

A:

Quick Answer

Borrowers seeking to sell their house short must be in default before lenders consider short sales, as explained by SFGate. A mortgage is in default when the borrower fail to meet the payment conditions of a loan. A mortgage continues to remain in default until the borrower brings the loan current by making all past due payments.

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Full Answer

One of the basic rules lenders require before they consider short sales is that borrowers explore all other options, such as loan modifications or repayment plans, as stated by SFGate. Another rule is that the property must be “underwater," which is when the value of the property is less than the amount of money the borrower owes on the mortgage.

Lenders also require that borrowers must prove financial hardship before they consider short sales, according to SFGate. Homeowners must detail their current financial status by submitting recent paystubs, W-2s, income tax returns and proof of assets. Other financial hardships include job loss, health conditions and the death of an income-earning spouse. Lenders usually require that the financial hardship is long-term before they consider borrowers for short sales. The borrowers must not own any assets that allow lenders to recoup their losses from the mortgages.

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