Short Sales
What is a short sale?
A short sale is an agreement in which your mortgage lender agrees to accept a payoff on the loan for less than the balance. Many lenders agree to a short sale because they receive more of the loan balance in comparison to the amount they would gain from selling the property following a foreclosure. This process also aids in maintaining home values in the community where the property is located and helps the homeowner maintain a better level of credit compared to a foreclosure. In most instances, homeowners considering a short sale must meet specific criteria to qualify.
What is the process for getting a short sale approved?There is no universal set of rules or regulations that determine whether you are eligible for a short sale or whether your lender(s) will approve a short sale. Each lender is different and each has established their own criteria. First and foremost, contact your lender. This will aid in future communications by showing your intent to resolve the matter with honesty to satisfy the loan balance on your home to the best of your ability. Secondly, contact a qualified and experienced Realtor, your accountant and in some cases, an attorney.
The basic general steps in the short sale process after listing the property for sale are:
- Find a buyer
A qualified buyer must write an offer to purchase the property. Each lender with a mortgage or lien against the property must approve the potential purchase to the extent that their loans will not be paid in full at closing. Many lenders will not even consider a short sale, review the property's value, or evaluate your hardship until a bona fide offer to purchase is received.
- Submit a complete short sale package
An example of some of the documentation that your Realtor may be required to provide on your behalf includes, but is certainly not limited to:
- Letter of authorization - lenders will not disclose your personal information without your authorization to do so. With so many parties involved in a short sale, a letter of authorization will aid in cooperation and information sharing. The authorization letter should include the address of the property, the loan reference number, your contact information, the date and your real estate agent's name and contact information.
- Preliminary net sheet - this is an estimate of the sales price you expect and the expenses associated with the sale of your property, including unpaid loan balances and fees. This is a document that is usually produced by the title company that will conduct the final settlement after short sale approval is received.
- Proof of income and hardship - You must typically prove to your lender(s) that you are experiencing financial hardship and will be unable to continue making loan payments. In some, but not all cases, you may already be in default of your payment obligations. Most lenders will require you to provide specific information such as a financial statement, tax returns, bank statements, and pay stubs along with a hardship letter outlining exactly what has transpired in your life to cause financial distress since the purchase of the home.
- Final approval
Once you have submitted your financial hardship, you must be able to demonstrate that the property is worth less than the total amount owed to your lender and any other lien holders. Frequently, your lender will require a Broker's Price Opinion (BPO) from a Realtor, and it may also order an appraisal of the property from a licensed appraiser of their choosing. Once the lender(s) acknowledges your financial hardship along with the home's negative equity, the lender(s) decide if it is in their best interest to approve the short sale. Most lenders have a specific department that handles these requests which is commonly referred to as the Loss Mitigation, Pre-foreclosure, or Loan Workout Department.
Our team will be an incredible ally in the process, offering guidance and recommendations and ultimately being a key to the success of a short sale. While a short sale is a complicated process, the outcome of your patience and diligence are worth it in the end!
