Understanding a Short Sale and Is It Right For You
Short sales are continuing to grow in popularity as many home owners have fallen on difficult times during this economic crisis. In an effort to lower the foreclosure rate, the Obama administration earlier last year placed an emphasis on short sales.
A short sale is when a property is sold for less than the balance left on the mortgage loan. The borrower asks the lender to accept a sale price that is less than is loan and the lender decides that selling the property at a loss it is better than pressing the borrower. The borrower and the lender both consent to the sale and it allows the property owner to avoid foreclosure. However, the short sale does not always release the borrower from the obligation to pay the remainder of the balance of the loan, known as the deficiency.
Process
The property owner is required to prepare a “short sale package”. A complete and updated package is critical is getting a short sale approved quickly. The package includes the following documents:
Short Sale Package
1. Realtor Submission Check list
2. Listing Agreement
3. Contract on Property
4. Borrower/Seller Short Sale Information | Document Checklist
5. Authorization to Obtain Information from lender
6. Hardship Letter
7. Personal Financial Statement
8. Last two months of pay stubs
9. Last two years of W-2’s/1099
10. Last two years of tax returns
11. Last two months of bank statements
12. Supporting documents as evidence of hardship (medical bills, judgments, etc.)
13. Divorce documents, if applicable
Every lender has their own specific requirements and many have their own forms that must be used
Additional parties
Multiple levels of approvals and conditions are very common with short sales. Junior lien-holders – such as second mortgages, HELOC lenders, and HOA (special assessment liens) – may need to approve the short sale. Frequent objectors to short sales include tax lien holders (income, estate or corporate franchise tax – as opposed to real property taxes, which have priority even when unrecorded) and mechanic’s lien holders.
Timeframe for short sale approvals
Short sale success rates vary from state to state and from bank to bank. Bank of America short sales, as of 2009 are still the longest to be approved and have the highest failure rate. Whereas, Citi and banks like Wells Fargo tend to move faster. Smaller “local” banks tend to have their own rules, but will typically approve the short sale in days, not months.
Consent
Short sales are different from foreclosures in that a foreclosure is forced by a lender, whereas both lender and borrower consent to a short sale.
Bank Approved Short Sale
"Bank Approved Short Sales” are advertised by real estate advertisements, indicating that a real estate broker has had a previous price approval for the property.
An advantage to a short sale is that it’s less damaging to your credit score than a foreclosure. It’s important to remember that short sales can take a while to go through so it’s important you speak with an experienced professional.
For additional information on short sales please visit my resource section on short sales.
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