You need to get out of your mortgage, but with the glut of homes on the market right now, prices have dropped and you might not be able to sell your house for what you owe. What can you do if you can’t afford your home and you can’t sell it for enough to satisfy your mortgage debt? 

 

You might consider a short sale.  A short sale is when you sell your house for less than what you owe on your mortgage, but your lender or loan servicer agrees to accept the sales amount

as settlement of your debt, even though it is “short” of the full amount owed. You avoid foreclosure and your lender gets back most of their investment – a win-win situation. 

 

How do you get started?  First, speak to your lender or loan servicer, and ask them about their policy on short sales. Then contact a real estate agent who specializes in short sales.  Your agent can give you an idea of what your home is worth and how long it might take to sell. He or she can also help explain the lender’s short sale requirements, help you gather the right documents to move the process along quickly, and help you answer your lender’s questions. 

 

A word of caution: A short sale is not an option once your home is foreclosed by the bank. That means you must have an offer from a buyer, and the offer has to be accepted by the bank, before the house is foreclosed. Some states have very short timelines to process foreclosures.  Finding a buyer to purchase your home at a price acceptable to your lender can often take weeks or even months – all the more reason to engage a real estate agent with specialized knowledge, who can keep the process moving along as quickly as possible. The time you have to sell will likely be limited, so if a short sale can give you relief, you need to move fast. 

 

You might be thinking you can offer your home for a low price and sell quickly, but the bank is not likely to accept a price lower than the current market value based on recent, similar home sales in the area. The real estate agent you select should be prepared to help you price your property appropriately to attract buyers and satisfy the bank’s requirements.  Best practice: your real estate agent will present you with comparable property sales in the area and a recommended listing price, at which time you will contact your bank for a range of sales prices they will accept. This will give you a better idea of the price you need to list and negotiate with a potential buyer. 

 

Remember, during the sales process, you are still the owner of the property, and you will be the one to negotiate the sales price with potential buyers, not the bank. If you have priced your house appropriately, and your lender has given you input on what range of selling prices they will accept, a contract with a buyer for the sale of the home is more likely to get approval.  Be careful to make your contract for sale contingent upon your bank accepting the amount as full settlement of your debt. 

 

If you have a second mortgage or equity line of credit that must be satisfied along with the first mortgage at the time of sale, you will need to get approval from each lender and coordinate between them to ensure they will each release you from any debt obligation at the buyers purchase price. 

 

Short sales take a lot of work but they can be well worth the effort. Contrary to popular belief, your bank does not want your property, and they will try to work with you. They do have a business to run, so keep in mind they must try to get back as much of their investment as possible. And, also keep in mind while your call is important, in the present economic climate the lenders have many borrowers calling them. Be courteous, even when your bank seems uncooperative.

 

Understanding their position will help smooth the way for a more productive relationship.  Be willing to listen.  Your lender may have very reasonable suggestions that will make the difference between approval and denial of your short sale. And if all else fails, don’t be afraid to politely take your proposal to a higher decision maker at the bank.

 

Be persistent.  Be polite.  Be in touch.  A short sale can be a good alternative to foreclosure, but if your lender or real estate agent indicates a short sale is probably not for you, check out these other alternatives to foreclosure.  The more you understand all the options that may be available, the better off you’ll be!