In recent years the emergence of Short Sale properties have swarmed the market, it is important to understand that banks are not in the business of owning Real Estate and in most cases it is in their best interest to Short Sale a property verses allow it to fall into Foreclosure. The average cost of a Foreclosure ranges from $35,000-$65,000, so allowing the short sale eliminates a lot of time and money for the lender. Now keep in mind that the average loss mitigation representative has an average of 150 files on their desk and without a proper package; yours WILL be sent to the bottom of the pile. That’s why it is imperative that you work with an expert, remember a GOOD agent matters.
A home is a candidate for a short sale when all liens, plus costs of sale, exceed home’s value. These liens include mortgage liens, mechanics liens, tax liens, unpaid judgments, and unpaid HOA fees. Think of a short sale as a form of pre-foreclosure sale in which the lender agrees to accept less than the loan amount to avoid taking the home back in foreclosure. The good news is that the lender pays the closing costs, commissions, title fees, and repair costs. The seller gets the home sold, the loan satisfied, and avoids foreclosure. There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale." When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales. Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect. There is a phrase that I tend to repeat when asked about short sale in real estate; and that would be “there is nothing short about a short sale”.
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale." When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more sense to foreclose. A financial hardship is very important to the short sale as the lender will want to know why the home owner can no longer make scheduled payments (such as illness, death or spouse, loss of employment, reduced hours etc…) this aides the lender in determining if the hardship is legitimate enough to allow the short sale to go through. Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect. The first step before attempting a Short Sale is to contact a Qualified and Certified Realtor who specializes in handling Short Sales.
- Call the Lender
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision. - Submit Letter of Authorization
Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:- Property Address
- Loan Reference Number
- Your Name
- The Date
- Your Agent's Name & Contact Information
- Preliminary Net Sheet
This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale. - Hardship Letter
The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior. - Proof of Income and Assets
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving. - Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue. - Comparative Market Analysis
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:- Active on the market
- Pending sales
- Solds from the past six months.
- Purchase Agreement & Listing 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. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.
