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Short sales are when you sell your property and the lender accepts less than what is owed on the property. In the last few years in this slowed economy they have become ever more prevalent.
In the current market short sales are marketed by realtors and banks more than ever. In a short sale the lender basically agrees to accept less than what is owed on the property or mortgage loan(s).
Recent e-mails and conversations of late have
frequently asked about the short sale process. Even though our company does not
offer short sales I feel that it is important that you know the facts whether
you are considering selling your home as a short sale or if you are considering purchasing your home as a short sale.
Please weigh and consider the short sale process appropriately so that you know what you are getting into if you are considering selling a short sale property now—or in the future.
What You Should Know If You Are Considering Selling Your Home Using The Short Sale Method
In a short sale you (as the home seller) would receive no money and the lender(s) would receive less than is owed on the loan(s).
The short sale process can be time consuming for all parties involved. As a seller you must have patience and an understanding of the process—if you determine that a short sale is best for your current situation.
The fact that a short sale approval process has to go through a number of channels to get it approved would be the major reason for the delay in getting your Short Sale Approved—if you chose to list your property as a short sale.
Even with all of the recent legislation—the short sale process is still drawn out—meaning it can easily take several months to complete the process—under the best of circumstances.
In most areas of the United States the lender will normally have 45 days or less to approve the short sale, however this can vary depending on your state law.
In many cases the short sale approval must be granted from investors, servicers, mortgage insurers, the actual lender and possibly others.
Each party mentioned above may have a particular process and procedure that is required in order to move the paperwork and get the approval that is needed.
In addition, if your real estate agent is not familiar with the process and/or does not have a systematic approach to handle short sales—the process can be made even more difficult.
You and your real estate agent will provide a "Short Sale Packet" to your lender—and the lender (and possibly other involved parties)—will weigh whether it makes more financial sense for them to approve the "Short Sale" or to "Foreclose."
Remember—not all properties qualify—it must normally be your primary (owner occupied) residence!
Your real estate agent will have to provide the lender credible reasons for accepting less than is owed on your home loan.
Normally you will have to have a compelling reason (hardship) for the mortgage company to accept less than what is owed on the property:
Divorce/Separation—Death in Family
Monthly Payment Increase—Business Failure
Medical Bills—Property Damage
That means your cash flow situation will have to be presented to them, comparable active, sold and under contract properties and other market data in your area will have to be submitted.
In addition, your tax assessment data and other data particular to your situation will have to be collected and provided to the mortgage company.
Be sure to have your real estate professional review and counter the offer contract (from the purchaser) in a manner that will enhance your interests and negotiating position.
In the short sale process patience and persistence is vital for the purchaser and the seller. Even though an urgent closing is needed in your situation—you too must have patience.
Also realize that even after you accept an offer contract the short sale must still be approved by your lender.
In most states language must be included in the offer contract that states the short sale and/or acceptance is contingent upon lender approval.
Also, if a 2nd mortgage is involved the lender
in the 1st position may have to give (some of the proceeds of the short sale)
something to gain the cooperation of the lender in the 2nd position.
Be sure to use an agent who knows the short sale process and has a proven system and one who looks out for your best interest.
You could possibly lose several months in the process if your closing falls through.
However, with the market over-saturated with short sales and distressed properties—and the fact that you are obviously in a distressed situation—you should make your best effort at selling short—if that is the route that you subsequently choose.
Be aware that there are credit issues that you will have to deal with whether the short sale is approved—or you decide on another option outside of paying the mortgage loan off in full in the time frame of the note—or prior to the term remaining on the note.
Key Points To Remember:
Be aware that the short-sale process can be, and often is—a frustrating process.
Be sure to utilize competent professionals and don't be afraid to seek a number of opinions.
Try to get the bank to start your short sale file early—this too can speed up the process.
Try to find an agent who is familiar with the short sale process and knows how to get things done—as selling short is a frustrating and daunting task for those who don’t have a history of dealing with lenders and short sales.
A good real estate agent will have a systematic approach—and will provide a "Short Sale Packet" to you and your lender.
Included in the packet will be:
As you can see by looking at the lender packet listed above—you want to be dealing with an experienced short sale agent who knows how your particular lender handles the short sale process—to be most effective.
Be sure to factor any repair costs that are required or needed into your decision as to whether you should sell using the short sale method.
Be aware that a serious purchaser will normally do a standard home inspection—at the least—and they may have to do a special inspection on certain items—say a pool, septic system, lead, mold and other items—not included in a standard inspection.
If you are able too—try to get the lender to approve the short sale as early as possible.
Savvy home buyers look for short-sale properties that have already been approved (lender has approved a sales price)—your realtor would normally include this fact in his/her marketing.
Remember that if the purchaser is not paying cash—the home will have to be financed and must past appraisal.
That means the property must be in fairly decent condition.
If the house is missing plumbing fixtures, pipes, copper etc. or walls and windows have been severely damaged the appraisal process may nix the closing. Determine the property condition as best you can early in the process of deciding whether a short sale is right for you.
Likewise—make sure that the potential home buyer is pre-qualified—or preferrably pre-approved—prior to submitting your offer to your lender.
As a home seller it is important to show the purchaser and mortgage company (your lender) right up front that you are serious about selling short—and you meet all of the conditions—and have all of the necessary paperwork in your file.
You must realize that if repairs are needed the short sale will be made more difficult.
The purchaser would then have to get an FHA 203k or other rehab loan—to close on a property that needs repairs or possibly set up an escrow account for repairs if the lender(s) agree.
Your greatest benefit as a seller of a short-sale is that you would no longer have the house payment and outstanding debt—however your credit would take a hit and you would still have to find a place to live.
The hassle and time involved in selling using the short sale method is that you will now have the property out of your hands.
Make sure that their is no recourse to you for the deficiency (the shorted amount). Be sure to get it in writing as it could come to haunt you in the future.
There are also tax consequences of selling short as well—although current legislation is somewhat favorable in the way that the deficiency is handled. Keep in mind that future tax treatment is uncertain.
Be sure to get tax ramifications from a competent Attorney and/or CPA.
As a seller you will also have to submit a "Letter of Authorization" if you are using a Realtor, Attorney, Title Company and other specific parties.
The letter of authorization—in effect—gives your lender permission to talk to the parties mentioned above.
Be sure to include the address, the loan reference number, your name and any other person who is on the loan documents, the date and your agent's name and contact information at the very least.
Remember, that by law the documents must spell out that the short sale approval is dependent upon bank approval.
Remember that in a short sale you (as the home seller) would receive NO MONEY and the lender(s) would receive LESS THAN is owed on the loan(s).
Remember that in order to qualify you normally must have some type of hardship that has made your monthly mortgage payments difficult or unaffordable.
As a seller you may have to do repairs on the home as the property must pass appraisal if financing by a purchaser will be needed.
Remember the fewer parties involved (lender, servicer, investor, lienholders, 2nd mortgage, mortgage insurer etc.) the better it is for you—as the process will be faster and less complicated.
Be sure that your agent utilizes contingencies and special stipulations to your advantage!
See if your agent can get short sale approval before or soon after your property goes on the market.
By getting this done upfront you will receive more serious offers in a shorter time frame due to your lender having already signed off on a sales price.
Always keep in mind the fact that as a seller—you may have to do "some" repairs on the home—as the property must pass appraisal if financing by a purchaser will be needed.
Be sure to inform your real estate agent of all lien’s on your property.
Have your realtor see if your property qualifies for the federal HAFA (Home Affordable Foreclosure Alternatives or other Assistance Programs channeled through your state or local housing agencies) program.
Loan Servicers in the HAFA program by law have to make an approved price decision within 30 days.
Again, be sure to try to find an agent who is familiar with the short sale process—and knows how to get things done—as selling short is a frustrating and daunting task for those who don’t have a history of dealing with lenders and short sales.
Try to deal with buyers who are pre-approved for a loan—or is otherwise in a strong financial position.
Besure that the real estate agent that you choose—is familiar with the process and/or has a systematic approach to handle short sales— as the process can be made even more difficult—if the agent is new to the process.
The above data may seem overwhelming, however if you are seriously considering selling your home as a short sale—the information can be invaluable.
In addition to competent legal and professional advice—the information on this page should put you on the right path in helping you decide if a short sale is appropriate for your current situation.
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