WHAT IS A SHORT SALE AND IS IT FOR ME?
A short sale is when a seller gets their lender’s approval to sell the home for less than the balance of the loan owed on the home.
At no fault of the sellers, market values may have declined in the home owner’s area so that there is not enough equity left to sell the home free and clear.
Or you may have lost your job and gotten behind on your payments.
WHY ARE SHORT SALES SO COMMON?
Short sales often represent a “win-win” for the borrower and the bank. A borrower may be able to seller her home, pay-off most of her mortgage and have the unpaid balance forgiven. The bank does not have to incur the cost of foreclosure and the certain loss of real property value from a vacant home and low price at a sheriff sale. The bank will typically lose the LEAST amount of money by allowing the borrower to sell the home “short”.
CAN ANYONE SELL THEIR HOME AS A SHORT SALE?
Not necessarily. Typically, sellers have to be able to demonstrate financial hardship to qualify for a short sale. That basically means the seller does not have enough cash to bring to closing to make up the shortfall. But short sales have become very common in this market so most lenders now have dedicated departments to help home owners participate in a short sale of their home.
DOES THE BANK HAVE ANY OBLIGATION TO APPROVE A SHORT SALE?
No they don’t. The terms of the note and mortgage still apply.
But in most cases, it is in the financial interest of the bank to approve the short sale to avoid the expense of foreclosing and loss in property value to a vacant home.
DOES THE BANK HAVE TO FORGIVE THE DEFICIENCY?
No they don’t. Some banks reserve the right to pursue the deficiency. Banks may release the lien and allow the sale of the property but still continue to bill the seller for the unpaid balance.
But participation in federal programs such as HAFA (Home Affordable Foreclosure Alternatives) guarantees deficiency forgiveness and other beneficial terms for the seller.
If you want to explore foreclosure prevention further, there are a number of local non-profit organizations and government-sponsored programs that specialize and helping home owners who are behind on their payments. A good place to start is: http://www.makinghomeaffordable.gov
And if you think you’ll need to sell your home short, use a real estate professional with experience with short sales. Many agents do not and you can lose a lot of time.
NAVIGATING A SHORT SALE TRANSACTION
SHOULD YOU SELL YOUR HOME “SHORT”?
- Are you experiencing financial hardship?
- Have values declined in your neighborhood?
STEPS TO SELLING YOUR HOME “SHORT”
- Consult with a local non-profit or government agency for pre-foreclosure counseling.
- Consult with an experienced “short sale” real estate agent.
- Consult a real estate attorney and CPA on possible legal and tax consequences.
- Contact your lender for their short sale or hardship packet.
- Hardship letter detailing why you have to short sell.
- Personal Financial Statement
- Authorization Form (so a third party can talk to the lender)
- Miscellaneous forms, lender specific
- List property.
- Contract with buyer.
- Get lender acceptance of short sale contract.
If you need professional guidance through the landmine of short sales, please contact Baker Realty Group.