Understanding Short Sales | ||
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There are many flavors of compromise you can strike with your lender if you are facing foreclosure. One of the toughest to execute is the short sale.
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What Is a "Short Sale"?
A short sale, defined as an "agreement" to allow a home to be sold for less than the amount that is owed, can be a helpful compromise for everyone involved.
Short Sales Are Desirable.
A short sale is an alternative to foreclosure. For homeowners who owe more than the house is worth, a short sale could save them some of the enormous pain, embarrassment, and major credit challenges associated with foreclosure. While a short sale may damage your credit somewhat, it typically is not as significant as a foreclosure.
Short Sales Are Harder to Complete.
Because a short sale results in the lender losing money they are owed, these transactions must be done with the full participation and agreement of the homeowner's lender(s). Lenders are institutions and often respond slowly when evaluating a request for a short sale. Short sales are more frequent in a declining market and many lenders are not prepared to handle the quantity of short sale requests they receive. Once the package is in the hands of the right person, the bank may have some reason they disagree with the deal between the buyer and seller, and may insist on inserting the bank's price increase, reduction in closing cost credits, or other major alteration of the terms of the deal.
During a short sale, the buyer, seller and the real estate agents are subject to the decisions of the bank and the sale cannot close without the bank's agreement.
Getting Your Lender to Agree to a Short Sale.
With all that said, short sale transactions are completed every day! Because the lender is likely to take so much time processing your short sale request -- and because time is of the essence -- you must ensure that your short sale request itself is as articulate, thorough and persuasive as possible. Here are some concrete actions you can take to maximize your chances for success.
If you are struggling to make your mortgage payments, list your home as soon as possible. We would be happy to do a Current Market Analysis of your home for you. If it seems your home is likely to sell for less than you owe on it, immediately contact your lender's "workout" department to request a short sale package. If you can get your lender to indicate how much of your mortgage they are willing to forgive up front, you boost your chances of working with a buyer to create a deal that is a bargain for them, but likely to be accepted by the bank, too.
You will need to authorize us as your your real estate agent -- in writing -- to work and to negotiate directly with the lender. But make sure to stay on top of the communications between your agent and your lender. Delegate; don't abdicate!Make Sure An Offer Is Presented In Its Best Light.
With all offers submitted, we will include a cover letter that explains the buyer's qualifications to buy your home, how much down payment money they propose to put in, if the buyer is a first-time homebuyer; lenders are more likely to agree to concessions for first-time buyers than for investors.
-- anything that might boost the lender's confidence.
Your Lender Will Request A Hardship Letter.
A written declaration and supporting documentation demonstrating financial hardship and an inability to make payments will definitely be required by the lender in order to even consider a short sale. Make sure you handwrite it, and present your finances in the worst light. If you lost a job, had an illness or death in the family, are a senior citizen or have any other circumstances then let the lender know. Also explain any facts that might make it harder for the bank to resell your house -- anything that makes the bank grateful that someone has made an offer. In addition, you must be at least 91 days delinquent before a lender will even discuss a short sale.
Make Sure The Package Is Complete.
At a minimum, the lender will want to see:
The offer to purchase your home, including the buyer's preapproval letter;
Your hardship letter;
A balance sheet listing your monthly income and expenses;
Statements from your checking, savings and other asset accounts;
A net sheet from your real estate agent listing all of the closing costs that must be paid for your short sale to close;
Supporting documentation, including two months' worth of paycheck stubs and all your bills;
Your last two federal income tax returns.
Don't make them have to come back and ask you for any of these items. Make sure the package is complete the first time we send it!
Feel free to give us a call with your questions about foreclosures or send us an email.
Next Foreclosure Article: Sell Your House Fast When Facing Foreclosure
