Short Sale Information

Short Sale - A short sale is a sale of real estate in which the sale proceeds Short Sale fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.

The Process

The short sale process is usually a fairly arduous one. In a short sale, the bank or mortgage lender aggrees to discount a loan because of an economic or financial hardship on the part of the borrower. The home owner/debtor then attempts to sell the mortgaged property for less than the balance owed on the loan, and turns over the proceeds of the sale to the lender. The situation of a short sale is intended to have the least impact on both parties. The bank doesn't want to incur the fees and financial obligation of a foreclosure, and the debtor wants to keep their credit report as clean as possible. The short sale process is, for both parties, the most economical solution to the problem. The short sale process is typically quicker than a foreclosure but does not extinguish the remaining balance unless the settlement is clearly indicated on the acceptance of the offer.

The Basics of a Short Sale

Short sales are granted for two reasons: the borrower of the mortgage has a hardship, and the borrower owes more money on the mortgage than the home or property is worth.

Some examples of hardship are:

  • Unemployment or reduced income
  • Divorce
  • Unexpected medical emergency
  • Necesity to sell assets because of relocation
  • Bankruptcy
  • Death

Financial Package Submission

The seller will need to prepare and provide a financial package to their lender containing a number of documents. Each bank has it's own guidlines and may or may not require the same documents, but, generally, the following documents are required by the bank in order for the short sale to be approved.

  • Letter of authorization - this allows the sellers agent to talk with the bank
  • HUD-1 or preliminary net sheet
  • Completed financial statement
  • Sellers hardship letter - outlining why they must short sale the home
  • 2 years of tax returns
  • 2 years of W-2s
  • Recent payroll stubs
  • Last 2 months of bank statements
  • Sales comparisons for properties in the area

Things to Consider

The short sale process has the potential to take quite some time. The listing agent of the property or home will need to contact the bank regularly to be as updated as possible on where the process is at. Potential buyers may find themselves waiting to hear back from the bank and after waiting sometimes as long as months, they may lost interest and move on. That is why it is imperative for the agent to be in consistent contact with the banks.

If the buyer does not have the time to wait for the process to take it's course, a short sale may not be a wise idea for them.

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