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Short Sale Foreclosure Process Explained

Selling Property
How to Short Sale in 90 Days or Less

What is a short sale? The answer is simple.

A short sale is anytime a lender is willing to accept less money than what you currently owe them on the mortgage securing your property.

Under a short sale, a lender will allow a property to be sold for less money than what is owed to the lender for the sake of ending and/or avoiding the foreclosure.

Before we explain the short sale foreclosure process, let’s first explain a few little known facts about a short sale to better understand the nature of the beast.

For starters, know that a short sale is not a typical real estate transaction.

Candidly, a short sale is a bank loss mitigation exercise and happens in business more than you think. The only difference in this case is the collateral happens to be real estate (property)…not equipment.

Loss mitigation implies exactly what it sounds like…lessening losses. The bank department that processes the short sale is the bank’s loss mitigation department.

Why is a short sale a good thing in most cases?

The main reason you would prefer a short sale is because you really do not want a foreclosure tarnishing your record (bankruptcy does not eliminate foreclosure).

This leads us to two foreclosure methods…



Illinois is a judicial foreclosure state. In a judicial state, a lender must legally give notice and go through the court system to repossess a property through foreclosure. In other words, a judge has to approve it.

California, on the other hand, is a non-judicial foreclosure state. In a non-judicial state, a judge does not have to approve the start of foreclosure. A trustee (usually a title company) will initiate foreclosure for the lender.

What’s the point and why should you keep reading?

As you will learn below, the timeline to foreclose in a non-judicial foreclosure state is much faster than a judicial foreclosure state.

The Only Reason…

Whether a lender will consider approving a short sale or not has little to do with your popularity.

Their reason is very simple.

A lender will look at what their expected “net recovery” will be via a successful short sale of the property versus what the lender would recover if they were to allow the property to reach sale at foreclosure auction.

That’s it…net recovery at short sale vs. net recovery at foreclosure.

Do not overcomplicate the reason on why a lender does (or does not) allow for a short sale.

A lender solely considers the short sale solution because someone (a professional) can demonstrate to the lender that the bank will ‘net’ more money by allowing for a short sale today (versus pursuing foreclosure auction tomorrow).

The reality is that short sales on average will ‘net’ the lender twenty-five percent more money than if they followed through to sale at foreclosure auction (potentially less money for banks at foreclosure).

The other reality is that banks don’t really want your property (although the government might)…banks want money.

Of all the real estate transactions, just know that a short sale is the one real estate deal you will not be doing alone…if you’re smart.

REPEAT. Try doing a short sale on your own at your own risk.

In a nutshell, to navigate the short sale process your real estate advisor must know how to structure the deal while managing the ‘scorecard’ of players.



A moment ago we mentioned that a short sale will typically ‘net’ the bank more money than a foreclosure sale…but not always.

There is a loss mitigation calculation (gain/loss analysis) used to determine if the ‘numbers’ make sense for a lender to consider approving a short sale vs. choosing sale at foreclosure auction.

In order for this gain/loss analysis (GLA) to take place, there is one all-important item that everything in a short sale hinges on…literally.

The most important number in the gain/loss analysis is the broker price opinion…BPO.

Before we explain the BPO and its relevance to the entire short sale foreclosure process described below, let’s first clarify one thing about the short sale.

The Adversarial Relationship…

When you do a short sale, you are selling property…not modifying the loan. It is a complete sale of property and you get on with your life.

Don’t ever forget whose side you’re on when you are doing a short sale (your own side). When you decide to do a short sale, just know that you and the bank are in an adversarial relationship.

In other words, you and the bank have opposite economic objectives. Don’t be misled to believe for a moment that the bank is trying to help you…they’re not.

Don’t be misled to believe the government sanctioned bank programs (loan modifications) are there because the government and the bank are trying to help you...they’re not.

At HK Creative Investments we do not perform loan modifications. We buy your property (or the note to your property) and handle the entire bank negotiation process for you.

The Biggest Loser…

Only under a very rare circumstance do we believe it is wise to do a loan modification.

A loan modification takes all the missed payments and past due interest and ‘tacks’ them on to the current principal balance. This is absolute madness…especially if in a declining market.

Doing a loan modification is one thing. Pretending that the banks helped you do a loan modification because they are trying to look out for your best interest is a delusion.

The biggest winner in a loan modification is the bank…not the borrower.

If you are selling luxury real estate ($1M or greater), multi-family or commercial real estate and wish to keep your property (not short sale)…we have a better method to loan modification.

Otherwise, plan to lose wealth over the long run when choosing a bank or government loan modification program.

Deficiency Judgment…

To fully understand how to short sale properly, let’s highlight the typical objective for the person selling property (you). What’s the goal?

The objective for you doing a short sale is to sell the property while also getting the bank to agree to terms of release that are beneficial to the seller (you)…a full settlement.

In other words, what good is it if you sell the property for less than what is owed (short sale) but the bank decides they will not release you from the debt remaining on the balance of money the lender was ‘shorted?’

Does that sound like a good deal for you if you have to continue to pay the bank on the amount of money they lost after the short sale?

Recall as consumers, when borrowers buy property using debt financing, borrowers sign a promissory note (debt instrument) and a mortgage/deed of trust (security instrument).

Therefore, just because the real estate secured by the mortgage/deed of trust has dropped in value does not imply that the promise to pay on the debt instrument changes. That promise to pay is spelled out in the promissory note.

That’s the point.

If you do not take advantage of the short sale process to negotiate a full debt settlement, the bank can pursue you for the remaining unpaid balance (deficiency judgment).

In other words, you want the mortgage insurer and the lender’s investors (secondary market) to waive all rights to pursue you for the deficient balance.

Remember…your loan is likely not owned by the lender. Your loan is likely serviced by the lender and owned by secondary market investors.

This is what you want a short sale approval letter to read like:
Real Estate

If you notice, the objective for you in a short sale is not about what is best for the bank.

The objective in a short sale for the seller (you) is to get all lien holders to release their security in the collateral (your property) and forgive any remaining deficiency balances with little to no out-of-pocket expense for you.

Can this be accomplished?

The simple answer is…Yes.

This remains why you need the right team in a short sale. At HK Creative Investments, not only can we buy your property (or the note), we coordinate negotiating your lender work-out too.

Getting a lien release in a short sale to sell the property is not the hard part…nor is selling the property.

Not So Simple…

The challenge in a short sale is getting a full settlement on deficiency balances when there are excessive losses on the deal for the lender.

Equally challenging circumstances arise when a seller does not have much time remaining until the foreclosure auction sale date.

A bank must give legal notice to start the foreclosure process in Illinois. This legal notice is a public document called the notice of default (NOD)…lis pendens.

From the filing date of the NOD, a delinquent borrower has 210 days to short sale a property before the foreclosure auction sale.

Short Sale


In California, the lender’s trustee files the NOD to start the foreclosure timeline.

Usually, this filing occurs following two or three months of delinquent payments.

From the NOD filing date, a delinquent borrower in California has about 110 days to complete a short sale.

In other words, the lender’s trustee will wait ninety days following the NOD and file yet another public document called the Notice of Trustee Sale (NTS).
Short Sale


The earliest the trustee sale auction can take place in California is twenty days after the Notice of Trustee Sale.

With the foreclosure process spelled out. Now all you have to do is fit a 90 day (or less) short sale process timeline within the foreclosure process…not so simple.

In order to sell property fast, we have a three phase short sale process.

Short Sale

As one can plainly see, a seller does not have the luxury of time in a short sale and knowing the foreclosure timeline remains vital too.

To complete a short sale successfully, we recommend you work with an investor who can immediately submit an offer to buy your property while simultaneously coordinating your short sale settlement.

Short sale your property with us. We will orchestrate the entire short sale process for you. Your only job in a short sale remains consistently signing and submitting any short sale paperwork to your team on time…that’s it.

Furthermore, this strict short sale foreclosure timeline unveils why the broker price opinion (BPO) can ‘make or break’ a short sale deal.

The Most Important Number…

Why a broker price opinion (BPO) is so important in a short sale and what is it?

For starters, before a bank will even consider approving any short sale, a bank has to order an independent valuation of the property.

Why? Very simple…if the bank doesn’t know what the value of the property is, how can they run the final numbers?

So, once you submit a completed short sale package (including the buyer’s offer), the file will be assigned to a processor in the bank’s loss mitigation department and they will send an independent real estate broker to conduct a valuation of the property (BPO).

That is the first thing the bank wants to know…what the property is worth.

Likewise, here the stage is set for how long the short sale process will take. On the surface, it seems a BPO should be very straightforward and predictable. Without going into too much detail, take it from us…it’s not.

There are factors that cause short sale BPO values to come in at unreasonable numbers. What do we mean by unreasonable?

Unreasonable means too high…which occurs a quarter of the time.

REPEAT. The speed of the entire short sale transaction hinges on the BPO. The lender conducts their gain/loss analysis based off of the BPO value and the expected foreclosure date.

If the BPO value comes in too high, then the ‘net recovery’ the lender will require to approve the short sale will be higher. If it is high enough, your property will sit on the market for months because it is overpriced (while your foreclosure date gets closer).

Federal Disclosure…

The MARS ACT was enacted to protect consumers in a short sale. MARS stands for Mortgage Assistance Relief Services and this disclosure statement is required of any person offering mortgage assistance to borrowers in a short sale.

HK Creative Investments, Inc, its employees or associates cannot:
  • Take any money from you; nor ask you to sign or have you sign any lien, mortgage or deed.
In connection with its short sale services, HK Creative Investments, Inc:
  • May not request or receive payment of any upfront fees or other consideration until you have executed a written agreement with your lender incorporating the offer of mortgage assistance relief the short sale negotiator obtained.

  • Must disclose that you may stop doing business with HK Creative Investments, Inc at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender. If you reject the offer, you do not have to pay HK. If you accept the offer, HK Creative Investments, Inc will be paid by the purchaser or your lender.

  • Must provide a notice from the consumer's lender describing all the differences between the terms and conditions of the original mortgage loan vs. the mortgage loan if you accept your lender's new offer.

  • Understand that a short sale is an agreement between you and your lender that allows the property to be sold for less than the mortgage balance owed. Therefore, the seller in default will not receive any money or proceeds from the short sale transaction - unless payment is specifically allowed by your lender. The seller in a short sale may receive a 1099 by the lender and should seek legal and CPA advice about implications regarding 1099's. HK Creative Investments, Inc discloses that we are not a licensed attorney or CPA and does not give legal advice.

  • HK Creative Investments, Inc is not associated with the government and our short sale service is not approved by the government or your lender. Even if you accept this offer and use our short sale service, your lender may not agree to change your loan.
If you stop paying your mortgage, you could lose your home and damage your credit.

If the value of your property is less than the amount owed the bank, selling property with a short sale may be right for you. Contact us today for a no obligation short sale consultation…we buy property.