Short sales explained: Why now is the time to hone your skills

I could sense them coming back.

It has been roughly five years since the COVID-era housing boom turned real estate on its head. If you don’t remember, buyers competed aggressively for limited inventory — everywhere. By early 2022, 68.6 percent of offers written by Redfin agents encountered bidding wars.

Then a friend connected me with a woman who was underwater on her mortgage. She and her husband had bought their home when interest rates were low. But life happened: Her husband stopped making the mortgage payments, and she couldn’t afford to carry the loan by herself. She ended up getting a notice of default.

When she tried to sell the property, she found it was worth less than she owed on the mortgage. Property values had corrected, and more inventory had become available. In the current market, she couldn’t get anywhere near what they had originally paid.

She was underwater.

Her situation is why short sales are rearing their ugly heads again. Realtor.com reported that nearly 30,000 short sales took place nationwide in 2025. The number of transactions increased 4 percent from 2023 to 2024, 10 percent from 2024 to 2025 and 16 percent during the first quarter of 2026. Short pay transactions remain a small portion of the overall market, but the trend is moving upward.

A short sale is a tool to help verifiably distressed homeowners sell their property for less than is owed on their mortgage, and the lender agrees to take less than is owed. Because the lender must approve the transaction, it involves the seller, buyer and lender — not just the buyer and seller. 

The process is difficult, but it can offer an alternative to foreclosure. Realtor.com reports that short-sale properties have historically sold for roughly 9 percent to 10 percent more than comparable foreclosures. This makes them attractive for lenders.

I learned this work during the Great Recession, when I became a Certified Distressed Property Expert. My first short-sale listing took eight months to close. It taught me an important lesson: When the market turns, we need to turn with it.

Here are some questions from my conversation with the client. Hope you find these useful, and I love your questions, comments and feedback. 

Question: I just came home and found a notice of default on my front door, what do I do?

Answer: Take a deep breath. This happens all the time. Between 2008 and 2012, short sales climbed to roughly 10 percent to 15 percent of all home sales.

Now do these 4 things, in this order:

1. Do not panic, and do not ignore it. A notice of default is the first formal step in foreclosure. Depending on your state, you typically have 90 days or more before the next step — the notice of trustee’s sale — gets scheduled. 
2. Open your mail and read everything. The notice tells you who is servicing the loan, how much you are behind and your reinstatement deadline. Call and get the exact amount owed, including fees. Do not rely on the number you think it is. Get it in writing.
3. Call your lender immediately, and ask for loss mitigation. This is the department that handles homeowners in trouble. Ask for every option in writing: a repayment plan, a loan modification, a short sale or a deed in lieu of foreclosure. Lenders would rather work with you than foreclose. 
4. Get professional help. Talk to a real estate agent who has closed short sales, a housing counselor approved by HUD and a real estate attorney. You need to know whether you are underwater, what your house is realistically worth, and which path preserves your credit and gets you out clean.

Question: What is a short sale?

Answer: A short sale happens when you owe more than the house is worth, and a lender agrees to absorb the difference. The bank accepts the loss because foreclosure costs them more.

You market the house like normal and get as close to market price as possible, then the whole file goes to the bank. They can approve, counter or kill it. That’s why short sales take months. The lender ultimately decides if the offer is acceptable, and banks move at bank speed.

A short sale is not a foreclosure. In foreclosure, the lender seizes the property. In a short sale, you sell before they get that far.

For sellers, the payoff is real. A properly approved short sale may soften the credit hit and shorten the wait for your next mortgage to about four years versus seven after foreclosure. The forgiven amount can trigger taxes, so loop in your tax and legal advisors.

For buyers, short sales look like bargains, and sometimes they are. But you’re negotiating with the homeowner’s lender to pay market for a property that may not be in great condition.

Question: How long will the entire short-sale process take, and can I remain in the home while it is being processed?

Answer: Yes, you can stay in your home while it is listed as a short sale and while the deal is being negotiated. Staying in the home is actually an advantage — it keeps the property presentable, keeps you in control and makes the sale more likely to close.

As for timing, forget a normal 30-day escrow. Lender approval alone commonly takes 60 to 120 days, and the full timeline from listing to closing can stretch to four or six months.