Are you behind in your mortgage payments? Is your bank or lender threatening foreclosure? A Short Sale may be an option for you.  A Short Sale is when an owner sells their house at a lower price than the outstanding mortgage. The lender must approve the sale and the lender receives all proceeds from the sale. Many times, a Short Sale is referred to as a Pre-Foreclosure Sale.

For a Short Sale to occur, the following conditions must be met:

  • The lender must approve the Short Sale and any offers on the home. 

  • The homeowner must be unable or ineligible to refinance or modify their mortgage.

  • The homeowner must be in default on their mortgage payments.

  • The homeowner must prove that they have no income or assets to pay back the entire or some of outstanding amount on the mortgage. If the homeowner does have some funds, the lender may require the homeowner to come out of pocket or pay back some of the outstanding mortgage.

Once the home sells, the lender can either choose to forgive the remaining balance or pursue a deficiency judgment, requiring the homeowner to pay all or part of the difference. In some states, anti-deficiency laws require the deficit to be forgiven by the lender.

The Short Sale process can take a long time to get approved by a lender and can take up to almost a year to process. The sale of a Short Sale property is like a traditional sale where the homeowner hires a real estate agent to set the sales, price, market the property and negotiate on the homeowners’ behalf with a buyer or a buyer’s agent. The real estate agent will also assist in negotiating with the lender on the homeowner’s behalf.

While a Short Sale will result in a hit to the homeowner’s credit score, a Short Sale will have less of a negative impact than a foreclosure by the lender. Homeowners who go through foreclosure will need to wait between two and seven years before they can purchase another home. A homeowner who has gone through a Short Sale may be able to qualify for a house purchase much earlier.

Advantages of a Short Sale vs. a Foreclosure

There are many advantages of having a Short Sale rather than going through a foreclosure, but there can also be some disadvantages.


  • A Short Sale does not damage a homeowner’s credit report as much as a foreclosure.

  • With a Short Sale, the homeowner can qualify for another home purchase immediately or soon after the sale is complete.
  • With a Short Sale, the lender and not the homeowner incur the fees related to the sale of the property. The closing costs, too, are usually paid out of the proceeds of the sale.


  • There is a lot of time and paperwork involved in a Short Sale and it can take up to a year for a Short Sale to be finalized. 

  • The lender may require the homeowner to pay towards the outstanding mortgage or pursue a deficiency judgment.

The Process of a Short Sale:

Going through a Short Sale can be laborious, time-consuming, and unpredictable. Here are the steps for a typical short-sale transaction.

  • Once the homeowner has decided to do a Short Sale, the homeowner and their real estate agent will talk with the lender to get the lender’s approval for a Short Sale. The homeowner will submit a Short Sale package, which includes a hardship letter detailing why they can no longer pay or stay current with their mortgage payments. The homeowner will also need to show bank statements that prove a lack of income or assets that could allow them to pay off their debt. 

  • Once the homeowner and real estate agent receives an offer on the property, the offer is presented to the lender for the lender’s review and approval. The lender can accept or reject the offer.  They can also counter the offer with terms the lender will accept.

  • Once the offer is accepted, the escrow process or closing process is pretty much the same as a normal closing of a sale of a property.  However, there is extra paperwork that will need to be signed by all parties and all proceeds from the sale of the property are given to the lender, and the borrower is released from their mortgage contract. 

Do You Have a Property in Hawaii and Facing a Foreclosure? Do you have Questions or Interested in a Short Sale? Please Contact Me.

As a Real Estate Broker in the Islands of Hawaii for almost 30 years, I have knowledge of the Short Sale Process and nearly a 100% success rate in getting them closed with the lender. Please contact me for more information on how I can help you.