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Thinking About a Short Sale? Here's What Really Happens Behind the Scenes

When someone’s behind on their mortgage and the numbers just don’t work anymore, one option gets tossed around a lot: the short sale.

But what is that, really?

At first glance, a short sale sounds like a neat solution—sell the house for less than what’s owed, and the lender lets it go. But behind the scenes? It’s a lot messier, slower, and riskier than most people realize.

Let’s break down what’s really going on when someone short sells their house, and what you need to know if you’re thinking about buying one, selling one, or just trying to understand how the whole thing works.

What is a short sale—and why would someone do it?

A short sale happens when a homeowner owes more on their mortgage than the house is worth, and they can’t afford to keep it.

Instead of heading straight to foreclosure, they try to sell the home for less than the loan balance, and ask the lender to forgive the rest.

But here’s the kicker: the lender has to agree. And they don’t even look at the request until a buyer submits a real offer.

Can you get a short sale pre-approved by the lender?

Nope. That’s one of the biggest misconceptions.

The seller can’t just call up the bank and get a number. The lender won’t approve anything until there’s:

• A signed purchase offer

• A full financial hardship package from the seller, including:

  • Tax returns

  • Bank statements

  • Pay stubs

  • A letter explaining the financial situation

Until then, everyone’s just guessing what the bank might say.

Is buying a short sale risky for the buyer?

Yes, and not just a little.

Even if the seller accepts your offer, the lender might:

• Ignore it for months

• Ask for more money

• Add surprise fees

• Or just say no

There’s no guarantee your deal will go through. That’s why many buyers, especially first-timers, stay away from short sales. Most who take the plunge are experienced investors or extremely patient buyers.

How long does it take to get lender approval?

It’s not quick.

If things go relatively smoothly, you’re looking at 60 to 120 days. Sometimes longer—especially if there’s:

• A second mortgage

• Mortgage insurance

• Other liens on the property

And during that time? Deals fall apart. Buyers lose interest. Markets shift. Paperwork gets lost. The lender sells the debt to another bank. It happens.

Who qualifies to sell their home as a short sale?

You have to prove you’re truly in financial hardship. That could mean:

• Job loss or major drop in income

• Divorce

• Medical expenses

• Death in the family

The lender wants real documentation—they won’t take your word for it.

How bad is the credit hit from a short sale?

It’s not great, but it’s usually better than foreclosure.

A short sale will lower your credit score, and you’ll likely need to wait 2 to 3 years before qualifying for another mortgage. But if you manage the rest of your credit wisely, you can bounce back faster than if you just walked away from the home.

Are there tax or legal consequences?

Sometimes.

If the lender forgives part of your mortgage debt, the IRS might treat that canceled amount as taxable income.

There are exceptions, but this is one of those “talk to a CPA or attorney before you sign anything” moments. Don’t skip it.

Can any real estate agent handle a short sale?

Honestly? No.

Short sales are complicated. The paperwork is brutal. The waiting is endless. And if your agent hasn’t done it before, they’re probably not ready for the back-and-forth with the bank.

If you’re selling, look for an agent who:

• Knows how to talk to loss mitigation departments

• Can stay organized under pressure

• Has a system to keep buyers engaged throughout the wait

So, is a short sale worth it?

That depends.

For sellers in trouble, it can be a lifeline, a way to avoid foreclosure and move on. But it’s not fast, and it’s not easy.

For buyers, it’s a gamble. You might get a great deal. Or you might wait six months just to get a sky-high counter-offer, or a flat-out rejection.

Either way, if you're stepping into the world of short sales, you need the right people in your corner. The right advice. The right paperwork. And the right agent who knows how to keep things moving—even when the bank doesn’t.

Need help figuring out if a short sale makes sense for you?

Call us at 253-987-6789.
Whether you're buying, selling, or just trying to avoid a bigger problem, we can walk you through your options—and help you make a smart move.