What Is A Short Sale

For homeowners who are in foreclosure, missed a mortgage payment or know it is only a matter of time before they will default on their loan a very valid question they may be asking is what is a short sale

? A short sale, to state simply, is when a homeowner owes more on their mortgage than what the property is actually worth in todays market. A request is then made to the homeowners lender(s) to accept less than full payment to complete the sale of the property.

Although the process appears to be pretty straight forward and simple, homeowners must keep in mind that every situation is different and for the most part every lender has a slightly different set of rules. As you read this article remember that the process listed below is given as a general outline. Your short sale may flow perfectly through the negotiations but most likely you will encounter some hiccup along the way. This statement is by no means to discourage a homeowner from pursuing a short sale but meant to prepare you and hopefully spare you some frustration down the road if something does come up.

First and foremost a homeowner should retain a good, experienced real estate agent. Do not hesitate to ask the agent about how many short sales they have done and how many they have done successfully. Will they be negotiating the sale or will someone else? If a third party will be negotiating, make sure you understand how much experience they have as well. A good real estate agent will also be able to answer any question you may have about a short sale or the process. Another good idea would be to contact your attorney or accountant, either of which can explain the possible tax ramifications that may come from completing a short sale. And finally, be sure you know all the liens that are connected to your property. How many mortgages do you have, do you have a home equity loan, are there any credit card or tax liens? Knowing all the liens that are against your property is extremely important because all of the liens will have to be negotiated as part of the short sale process in order to get the house sold. If something isnt remembered until the last minute it can severely hinder the short sale from being completed in a timely fashion.

You will first sign an agreement with the real estate agent to put your house on the market. After your home goes on the market and you are waiting for an offer, take the time to get your financial documents in order. 99.9% of banks require proof of income, bank statements, and tax returns. Now is a good time to get in the habit of saving your paystubs and bank statements and continue to do so until your house is sold. The bank may ask for updated documents throughout the process and if you already have them on hand it is a huge time saver.

Once an offer is received on the house the request for the short sale will then be made to the lender. You must have an offer in order to proceed with a short sale. Your real estate agent or negotiator will put together a package to be submitted to the lender. This package will include quite a few documents. The first would be a letter of authorization. This letter will give your agent or the person who is negotiating your deal permission to speak to the bank on your behalf. You will need a separate letter for each lender or lien. A hardship letter, which should be neatly hand written or typed, will be needed to explain to the bank why you can no longer afford your home. Make sure you have signed and dated the hardship letter. Little details such as this are very important and can hold the process up. The next document will be a financial statement. This is a document where you will list all of your assets and debts/obligations. It is essential that you fill this document out completely and honestly. Make sure you think through all of your expenses, because often there are times when owners do not initially account for all of their expenses when preparing their financial statement. You will then be required to provide proof of income. Whether it be paystubs, your unemployment records or a letter from you stating that you are out of work (again signed and dated) the bank wants at least one months worth, and make sure they are the most recent month as well. Copies of your bank statements are next on the list. You will need to supply at least two months worth of bank statements, maybe more, depending on the bank. Again, make sure they are the most recent. The last two years of your tax returns are also required. The tax returns must also be signed so take a quick look and double check that they are. The bank will also want to see copies of the offer (signed by seller and buyer) and the listing agreement (signed by the homeowner and the real estate agent). Some banks have their own paperwork that you will need to fill out as well. A good agent or negotiator will have these on hand so you will have time to fill them out before hand.

After the initial documents have been submitted, the waiting game begins. You may have to occasionally supply updated financials to the bank or sign a paper or two. A good agent or negotiator will stay on top of the bank, calling them to check for updates and making sure your file is moving in the right direction. They will also be making contact with any other liens that are on your property and start negotiations with them as well. Most often, the documents mentioned above will be submitted to these lenders as well. Because each bank is different and has their own timeline and set of rules, a short sale can take up to 3 months or more. Patience is truly a virtue when it comes to a short sale. It is important to understand that a good agent or negotiator is working diligently to move the process along and as a homeowner, being prepared with updated financials as needed can really make a difference in the time a short sale takes. A good agent or negotiator will also keep on top of things such as if a foreclosure sale date has been scheduled. And even if a sale date has been scheduled, a request can be made for the bank to postpone it.

There are many reasons for a homeowner to consider a short sale if they can no longer afford their mortgage and are overleveraged. A short sale can help a homeowner avoid a foreclosure on their credit record. A foreclosure on ones credit record can be much more devastating than a short sale. A short sale can also help a homeowner avoid the embarrassment of a foreclosure and an auction. A short sale also allows the homeowner to get out of a financially detrimental situation and move on with their lives.

by: Kimberly Harrington

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