With unpredictable job markets and a shaky housing market, there are times when a homeowner will be unable to make consistent mortgage payments. This can result in a short sale. The short sale process can be extremely complicated, dealing with lenders, real estate agents, and time. When you find yourself in a possible short sale situation, contact a real estate agent as soon as possible to get the lengthy process started.
What is a Short Sale?
Simply, a short sale is when a homeowner owes more money on their house than it is worth. For example, the mortgage still has $300,000 due, but if the house was put on the market, it would sell for only $200,000. When this occurs, the home is “underwater”. The homeowner would be left paying the difference to the lender. With a short sale, the lender agrees to sell the house for an amount that is beneficial to both the homeowner and the lender.
Short Sale vs. Foreclosure
On the other hand, a foreclosure is when the lender or a cash buyer takes possession of the house. Foreclosures are often more time consuming and is not financially beneficial to the lender. Foreclosures can take anywhere from months to several years, and within that time, there are legal fees and holding costs that the lender will have to pay. In order to avoid these fees, a short sale will be agreed upon. Even though the lender may be taking a loss, they will avoid the time consuming process and fees.
Although requirements are different for each lender and situation, for a short sale to be approved, the bank will want to see that:
- Payments have not been made by the homeowner.
- The property is underwater.
- The homeowner does not have the assets needed to bring the loan up to date.
- The homeowner is experiencing difficult financial times.
Each situation is different, so not all of these must be met each time, it is ultimately up to the lender to decide. In the end, a lender is most likely to do what will benefit them the most.
Find a Short Sale Real Estate Agent
These situations can be complicated so an experienced real estate agent should be used. Questions to ask an agent include:
- How long they have been negotiating short sales?
- What is your success rate in the short sale process?
- Why are you the best short sale agent for my situation?
Find a Buyer
Before going to the lender to be approved for a short sale, it is beneficial and time saving to find a buyer for the property. The real estate agent will explain to the homebuyer that this is a short sale so everyone involved will understand the longer processing time.
Turn in Paperwork
For this step in the process, it is crucial to have the guidance of a short sale agent. After there is a contract signed between the seller and the buyer stating the sale price of the home, the real estate agent can deal directly with the lender and the homeowner will not need to be involved. To speed up the processing time, it is helpful for the homeowner to submit necessary paperwork, that includes:
- Cover letter
- Letter of authorization to release information
- Letter stating the seller’s hardship and financial information
- Two years of the homeowners W2s
- The contract between the seller and buyer
- A list of comparable prices of properties for sale in the area
- And others
The most important piece is the hardship letter, which you and your short sale agent can go over together to ensure all necessary information is included. After this paperwork has been submitted, it is time to wait for the lender’s response.
Valuation and Negotiations
In order for the lender to gain information on whether to approve or deny the short sale, they need to determine the value of the home. A price will be determined and the lender will respond saying they accept the short sale, they want to negotiate the price, or they can deny the short sale. If the lender chooses to negotiate the price, they will be dealing with the potential buyer of the home, not the current homeowner. The contract can be amended, accepted, or denied by any party at this point if the price and terms are not beneficial. When a price is decided on, the sale of the property can move on.
There are numerous pros and cons for each party involved in a short sale; therefore, it is necessary to have a knowledgeable real estate agent that is thoroughly experienced with a short sale. At Realty Resources, we have managed the short sale process numerous times and our realtors are able to navigate the complicated process with ease. If you are behind on your mortgage payments and believe a short sale could be a good option for you, get in touch with a real estate agent today.