Should I consider a Short Sale?
Today’s economy continues the slow pattern, causing people into hard financial times and many homeowners have tried other options such as loan modification before turning to real estate short sale in order to avoid foreclosure. It is true that by choosing a short sale, you may not get to keep your home, but you get to avoid the unpleasant and stressful foreclosure process.
Short sales have become a very effective solution for many struggling homeowners and about 40% of homes in today’s market, are selling through a short sale.
This is a process wherein you sell your home for its current market value even when it is less than the amount you owe on it, and your lender agrees to accept the short proceeds and consider your mortgage paid in full.
Obviously, banks have different policies and procedures for handling short sales and not every bank will agree to a short sale in general or to the terms which a certain buyer will offer. That's why it is better to work with professionals and make sure you follow all the bank’s requirements when submitting the offer, this will increase the chance for a smooth closing. After all, it's not just your home at stake - it's also about your financial future. With good planning and a dedicated team, you can short sale your home and get your mortgage cleared – once you closed the sale, you can start rebuilding your finances right away.
Short Sale Steps
The short sale process can vary, but it will generally work as follows:
Step 1 Pre-Qualification – Contacting the Lender
Most lenders generally will want you to meet the following:
1. Your home should be worth less than the value of your loan.
2. The property should have dropped in value.
3. Your mortgage should be in default or on the verge of default.
4. Your property should be listed on the MLS for at least 60 days.
5. You must be able to show a financial hardship that you are no longer capable of paying your loan and that you don’t even have assets to satisfy this loan.
Step 2 Submitting the Authorization Letter to the Lender
You will need to write a letter to the lender giving the lender an authorization and permission to talk with your representative (Realtor) about your loan. The letter should include the following:
• Property Address
• Loan Reference Number
• Your Name
• The Date
• Your Agent’s Name & Contact Information
Step 3 Hire an experienced “short sale” real estate agent
Banks find it difficult to work directly with the homeowner because they are already “on the hook” for the amount they owe. Banks prefer to negotiate a short sale with Realtors. The real estate agent will be needed to initially place the property on the market by listing in the local Multiple Listing Service (“MLS”), locating a buyer to purchase the property and negotiating the short sale with the bank.
Step 4 Verify the Value of your Property
The bank will require a fair market estimated value of the property. This is when your realtor steps in with the many tools of determining market values and provides this information to the bank. The escrow company will prepare an estimated HUD-1 Settlement statement, which would include all of the figures associated with the transaction.
Step 5 Submit Short Sale Package to Lender
The lender will request that you submit what may seem a mountain of paperwork to get the process started. Generally the lender will be able to send you what is called a “short sale package”. Below are the documents that the lender will request to be submitted or completed with their formatted documents.
A. Preliminary Net Sheet Prepared by escrow co.
B. Proof of Income and Assets From Borrower
C. Copies of Bank Statements From Borrower
D. Two years of tax returns and W-2’s. From Borrower
E. Signed IRS Form 4506 “Request for Copy of Tax Form” From Borrower
F. Hardship Letter From Borrower
G. Broker Price Opinion (BPO) Prepared by Realtor
Step 6 Find a Buyer
The next step in the short sale process is finding a buyer. With your property being listed on the MLS during the beginning process of the short sale, your property should have been receiving alot of exposure.
Step 7 Purchase agreement & Listing agreement
Once you have found a buyer the next step is to complete a purchase agreement. When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement, in which the Realtor will submit to the lender together with the entire required package.
Once the offer is in the lender’s hands, it is up to the lender to decide if the short sale is approved or not. Don’t be surprised if your short sale bid is rejected and countered. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give the buyer a “steal” deal. However, be prepared that the deal might fall through and you may have to wait for another buyer with a higher offer or in the worst case scenario the bank will not extend the time for you and will proceed to a foreclosure sale.
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