Here’s a quick primer on something you’ve been hearing about a lot lately and will likely hear about it even more over the next several months – the “Short Sale”. When a home has lost so much of its value that it is not worth as much as is owed on the mortgage, and the home owner is in danger of losing their home, foreclosure or bankruptcy may seem like the only available choice. If the alternative is losing the home, then looking into the option of the short sale may be something a homeowner should research.
A short sale by definition is simply a lower negotiated price for a home that the lender agrees to accept as the settlement of a loan for a home that is not worth enough in the current real estate market to cover the balance due on the mortgage. It is important to take the time to learn who in the lender’s office is responsible for short sale negotiations as a contact point. A letter of authorization should be drafted allowing the mortgage holder of the home to discuss the details of the balance due with the real estate agent that has been chosen to facilitate the short sale.
The next step in a short sale is contacting the mortgage holder. It is not permitted for home owners to simply decide that they wish to sell their home for less than what is due on the mortgage without making up the difference out of their own pocket. The home owner would have to state their case to the lender and provide them with evidence substantiating the claim that the home is worth less that is due on the loan. If the mortgage holder agrees you can negotiate a short sale. The lender may request what is known as a comparative market analysis to support this claim.
Much of the other paperwork and documentation needed for approval of a short sale is the same as the required information that was needed to qualify for a mortgage. Proof of income and bank statements to verify deposits will be required for the lender to see that you would not be able to maintain the mortgage as originally agreed to. A hardship letter explaining what led to the circumstances surrounding your inability to keep up the mortgage on the home is also an important part of the submission process.
A preliminary net sheet can be provided by the licensed real estate agent handling the sale. This will break down the sale price of the house and list each of the people to be paid at the closing. There should be no listing of a payout to the seller of the home. Having a payout for the seller would negate the need for a short sale. The final piece of the approval of the short sale puzzle will be the submission of the purchase agreement. Once a purchase agreement has been received, if all of the other paperwork is in order, the short sale should be approved.
An opportunity with a short sale that does not exist in foreclosure or bankruptcy is that you can ask the lender not to report you adversely to the credit bureaus. There are no guarantees, but there is a chance. A short sale may be an alternative option to losing a home.
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