So Just What is a Short Sale?
In the simplest terms, a short sale is a real estate sales transaction in which the seller's mortgage company has agreed to accept a payoff of less than the outstanding balance due on the loan. The seller will not realize any profits from the sale, and the lender has final approval authority for any offers made on the home. Although short sales can have a negative effect on your credit record, you're likely to qualify for future credit much sooner than if had allowed your home to go into foreclosure.
Through the short sale process, you'll sell your home and settle your mortgage debt for less than the outstanding balance. While we assist you to complete a short sale, your lender will continue to report the status of your account to the major credit reporting agencies. Once the short sale of your home is complete, your lender will report that your account was "Paid in Full for Less Than the Full Balance". Keep in mind, short sales are not for everyone. With a short consultation, we can advise you on whether or not a short sale will benefit you.
5 Steps to a Successful Short Sale
- Sign a Listing Agreement with a qualified Realtor
- Market for, and obtain a fully qualified buyer who makes an offer of your home
- Seller accepts offer subject to lender approval
- Listing agent coordinates document flow and negotiates with lender on your behalf
- Lender accepts the buyers purchase offer
- At closing, buyer delivers funds, lender releases lien, and seller delivers the deed
- File closes and funds
Do You Qualify for a Short Sale?
Despite what you may have read online or heard on TV, the decline of your home's value below what you owe on it does not automatically qualify you for a short sale. If that were the case, lenders would be absorbing the risk for every single home loan they make, and they're not in the habit of taking large risks. Banks and lenders take into account several factors when determining eligibility for a short sale:
- Decrease in Market Value
Usually determined by use of a BPO (Broker Price Opinion) or CMA (Comparative Market Analysis), lenders will want to see concrete evidence including comparable listings and sales that substantiate the decline in value below the unpaid balance. Often times, the unpaid balance will also include a prepayment penalty.
- Mortgage in (or near) Default Status
Some lenders refuse to even consider a short sale if an owner's payments are current, but we're seeing a stem in that tide. More and more lenders are beginning to recognize other factors that may contribute to a near-future default, making them more agreeable to avoid future problems.
- Owner Hardship
By and large, the number one factor making short sales possible is owner hardship. Job loss, divorce, and medical catastrophe are often cited by homeowners as the reasons why they either have stopped, or soon will stop, making their monthly mortgage payment. In order to qualify under hardship, lenders will require homeowners to submit a letter of hardship explaining in detail why they can no longer make their payments.
Most lenders will also likely require a financial statement and/or copies of the owners tax returns. Homeowners with assets can still qualify for a short sale, but could be required to pay a cash contribution at closing.
So What's the Next Step?
Once you've decided that a short sale is your best option, your next step is to schedule a consultation with us, which you can do by using the form at right. Please be aware that we'll need you to bring the following items to this consultation:
- All Owners Present. All the persons named on the title and mortgage loan(s) must be present.
- Hardship letter. A letter stating the events that led to you being unable to make your payments.
- Bank Statements. Last (2) month’s bank statements from all banks that you hold accounts with.
- Financial Statement. Statement documenting your income, savings, assets and expenses.
- W-2 Forms. Last (2) years W-2 forms from all of your jobs or sources of income.
- Tax Returns. Last two years federal tax returns.
- Insurance Claims Proof. (If there is damage to the property subject to a pending claim).
- Bankruptcy Letter or proof of Bankruptcy proceedings. (if filed)
- Copies of all 401k, IRA, or other retirement accounts
- Proof of Divorce. Any document that proves divorce. (if any)
- Proof of Disability. If you are presently or recently disabled.
These documents are not optional! Any lender considering granting you a short sale are going to require copies of these documents. So in order to ensure a smooth transaction, we ask for them right up front. All information provided is held in the strictest of confidence, and is used only for negotiations with your lender. Time is of the essence. There is a limited amount of time for us to take action.