If the market value of your home is less than the amount you owe on your mortgage, and you are in a situation where you do not think you can continue to afford the mortgage payments on your home, you might want to consider a Short Sale.
Unfortunately, in today’s economy, it is not unusual for your home to be worth less than when you bought it and worth less than your mortgage. Maybe you purchased your home when market prices were higher than they are today. Maybe you have a second mortgage or home equity loan on top of your original mortgage. Or maybe, you refinanced your home and took cash out for home improvements or to pay bills, or to send your child to college. Whatever the reason, you cannot sell the house for enough money to pay off the mortgages. And, you find yourself in a situation where you can’t make the monthly payment. So you really have to consider selling the house for whatever you can get. What can you do?
You can list your house with a real estate agent for a sale price based on similiar houses recently sold for your in your area. If you get a reasonable offer, but for less than what you owe on your mortgage(s), it is time to speak to your lender to see if the lender will accept a short sale. A short sale is simply the sale of a house for less than the homeowner owes on the mortgage(s). The proceeds of the sale fall short of the amount the borrower owes on the bank.
Keep in mind, the bank will only accept proceeds that fall short of the mortgage payoff amount, if the owner can clearly establish that the house will not sell for the price needed for a complete payoff. Remember the way to establish a reasonable sales price that the bank may approve, is to research recent home sales in your area for houses that are similar. That will provide a clear benchmark for a fair market value that the bank may consider.
Short sales often occur when the homeowner is no longer
able to afford their loan obligations and this is a way for a foreclosure to be avoided. Short sales can also take place when the homeowner is paying their loan obligation, but chooses to sell the property. In either case, the lender(s) could still expect to be paid the deficiency balance that is remaining after the proceeds fromthe sell transaction are applied to the outstanding loan obligation. This is the reason you must get approval from your lender or servicer to ensure that they will accept the proceeds from a short sale as full payment of your loan obligation. Make sure to discuss this detail with the lender prior to completing the short sale transaction.
There may be circumstances where you would still want to accept a short sale offer even if you will owe the remaining balance to the bank after the sale proceeds are paid. For instance, in a real estate market where prices are falling rapidly, if you have qualified buyer offering somewhat less than your mortgage payoff, you may want to accept that offer anyway. At least you will owe the bank less than if you waited and received even less from a future buyer. It takes many steps to complete a successful short sale.
Notify all parties
Notify the mortgage lender(s) of your intent to sell the property. If there is more than one mortgage on the property, you should contact all the parties to negotiate the sale price. Each mortgage lender may have requirements that need to be met prior to your submitting an offer to them. At this point, it may be helpful to find an experienced
real estate agent that can assist you through the sales process.
List your home
Without a buyer, there is no short sale. An experienced real estate agent will help in finding comparable home sales to set a reasonable price for the home and attract a qualified buyer in a short amount of time. This agent can list your home for sale, advertise the listing, and help you negotiate with the buyer and the bank.
Work with your lender
The lender(s) will usually ask for a hardship letter detailing the personal circumstances of your situation that is forcing you to sell the home. It is important to be honest in this letter with the lender because if any of the reasons are found to be false, the lender could choose not to accept a short sale. Also, be prepared to provide a detailed list of all current assets, including bank account balances, stocks you hold, other real estate you own, tax returns, and any other items of value. The mortgage lender will examine these in great detail to learn if there are additional funds available that you could pay toward the mortgage to reduce the amount of their loss. Remember, the entire amount was borrowed from the lender(s) and they have the right to review any and all assets.
Submit an offer to the lender
Once you have an offer to purchase from a qualified potential buyer, you can submit the offer to the lender(s) along with any other information they request. If your real estate agent has experience with short sales, they will be able to help you work with the lender(s) to complete the deal. The lender(s) will review the offer details looking at every fee, cost, and expense involved. They will review the sales price of the home, conducting their own evaluation as to the value of the property compared to the offer. Usually, the lender will do this by hiring an appraiser to go out to the home to determine the fair market value. They may ask for a reduction in some fees, a contribution from the seller, or require changes agreed to between the parties.
Your lenders decision
In most cases, the lender(s) will not accept the first offer received. If the lender(s) counters the initial offer, the buyer can decide whether to continue their efforts to purchase the property. The sale cannot take place without the lender(s) approval.
The entire short sale process can take some time, so it’s important for you to let the buyer know the conditions affecting the sale. As the seller, you don’t want to lose a potential buyer because they lose their patience because they were not made aware of the short sale.
