The Scoop on a Short Sale

The phrase “Short-Sale” is getting quite a bit of face time. Just turn on the TV and you can hear reporters talking about the increasing number of short sales throughout the city…or pick up a local newspaper ( if your city is lucky enough to still have a daily newspaper) and read about short-sales and foreclosures. We keep hearing this term “short-sale”, but do we really know what it means?

What is a short sale?

The word itself is quite misleading; some assume that “short” means quick, which implies a quick closing. But what it really means is that the Homeowner is trying to sell his home for less than what he owes the Mortgage Lender. Let’s say that a Homeowner really needs to sell his home and owes $300,000 to his Lender, but that the current market says that his home is only worth $250,000. That is $50,000 less than what he owes…tack on additional monies to cover commissions that must be paid and closing costs, and the Homeowner is really in the red. Because a short sale results in the mortgage lender losing money on a property that is secured by a mortgage, these transactions must be done with full participation of the Lender. So…what does a Homeowner due if faced with a similar situation?

How to Get your Lender to Agree to a Short Sale

• Approach your Lender as soon as you think you might request a short sale. If you are struggling to make your monthly mortgage, immediately list your home with a qualified Realtor. If the Realtor suggests that your home will likely sell for less than what is owed on it, immediately contact your Lenders “short-sale” dept. and request a short-sale package.
• Authorize your Realtor – in writing – to work and to negotiate directly with your Lender.
• When your Realtor receives an offer on your home, make sure the Realtor includes a cover letter explaining the buyer’s qualifications, and amount of down payment. Disclose any other pertinent information to Lender to help them make a decision.
• Your Lender will require a hardship letter from you. Pour your heart out to lender. Present your finances in the worst possible light. If you lost your job, had a death in the family, or have any other circumstances, let the Lender know. Let them know that you are considering bankruptcy. Once you take the first step to bankruptcy, the foreclosure process is stopped and banks would rather resell your home at a loss than go through bankruptcy procedures and then try to sell it.
• Make sure your “short-sale” package is complete when you send it back to Lender. Short sales generally take a considerable amount of time so you want to make sure that you give the Lender ALL the information that they require in order for them to make an informed decision. At a minimum the Lender will want:

1. The offer to purchase your home, including the Buyer’s pre-approval letter
2. Your Hardship Letter
3. A balance sheet showing your monthly income and expenses
4. Copies of your Bank statements
5. A Net Sheet from your Realtor showing all the closing costs that must be paid for your short sale to close
6. Supporting documentation, including 2 months pay stubs
7. Your last 2 years income tax returns.

Having a “short-sale” on your credit report is considered a small blemish compared to a foreclosure, which can keep you from purchasing another home for up to 10 years. If you see that you are having difficulty in making your mortgage payments, take the initiative and contact your Lending institution or a Realtor. Don’t delay!!

Until next time….