Tips On Short Sales

1. What Is a Short Sale?

A short sale is discussed if the home owner is facing financial hardship and is therefore unable to make payments on the home loan. In the event that the bank or mortgage lender agrees to it, a short sale is an alternative solution when foreclosure is looming. “Short sale” literally translates to selling a piece of real estate just short of the remaining balance of the loan. Because the homeowner finds him or herself in a position where paying the loan just isn’t feasible, the lender will then discount the balance of the loan and the home owner will sell the property and forfeit all of the proceeds to the lender. By doing this, the lender concedes that selling the property at a loss is a better option than continuing to pursue the borrower.

There are four conditions of a short sale:

    1. The home’s market value is down. This means that the home is worth less than the remaining balance on the home loan. Another way to say this is by saying that the home is "underwater".
    2. The mortgage is in default or heading that way. A mortgage default occurs when the borrower stops making payments on the loan. At that point, the lender can seize the property from the borrower.
    3. The home owner encounters hardship like divorce, death or serious illness, unemployment, bankruptcy, etcetera. It is important to note that personal lifestyle choices that cause financial strain are not considered.
    4. The home owner has no assets. If the homeowner had assets, he or she could use these to make payments on the loan.

How do you know if you qualify for a short sale?

Whether or not a home seller can go through with a short sale ultimately depends on his or her bank or mortgage lender. They have to agree to the short sale process in order for it to come to pass. If the seller’s situation does not line up with the aforementioned four points, he or she may not qualify to sell their home on a short sale.

Any buyer can put an offer in on a home up for short sale so long as they are able to qualify for a loan. It is, however, up to the lender whether or not an offer will be accepted on the property.

2. How to Request a Short Sale

If you are facing foreclosure and are considering selling your home as a short sale as an out, get in touch with a trusted real estate professional immediately. They will be able to assist you in the process of requesting to short sell your home.

    1. Your real estate agent will most likely tell you that some banks will not allow a short sale to happen. Contact your lender’s loss mitigation department and speak with a supervisor. Explain your financial situation and ask if you qualify to sell your home as a short sale.
    2. Ask the supervisor what documents you’ll need to proceed and make copies of those. (Depending on the lender this could be anything from bank statements, tax forms, pay stubs, etc.)
    3. Ask your real estate agent to come up with a comparative market analysis report to show your lender how much the home is worth based on home sales in the area.
    4. Write a letter of financial hardship detailing the reasons you are no longer able to make payments on your home.
    5. When you’ve completed all the aforementioned necessary paperwork, compile it together and mail it to your lender’s loss mitigation department.
    6. Pending your short sale application approval, request a deficiency release from the bank. The release absolves you of any obligation to pay the balance on the mortgage. If the bank refuses, continue to press the issue.

3. How to Prepare for a Short Sale

If a homeowner is facing foreclosure and wishes to explore short selling their home as an alternative, it is crucial to get help from a trusted real estate agent. With the agent’s help, this is how the homeowner will prepare to short sell their home:

    1. Agreement. The homeowner must get the lender to agree to sell the home at a loss.
    2. Documentation. If the lender agrees to a short sale, the homeowner will need to provide documentation to the lender indicating that he or she is financially incapable of paying for the loan. It depends on the lender, but the documentation usually required can include:

o    A hardship letter explaining why the homeowner is unable to pay the mortgage.

o    Recent tax return forms, W2 forms, and/or 1099s.

o    Recent paystubs.

o    Financial statement detailing list of assets and liabilities.

    1. Consultation. The last thing a financially stressed homeowner needs is more financial stress. The homeowner should consult with an attorney to find out whether or not difference between what the home is worth and what the home sells for will be taxed.
    2. Communication. Everyone needs to communicate during this process. The homeowner needs to communicate with the lender to make sure the lender has everything needed to apply for the short sale. The homeowner and the lender need to be in constant contact with potential buyers to make sure they stick around.

3. How to Prepare for a Short Sale

If a homeowner is facing foreclosure and wishes to explore short selling their home as an alternative, it is crucial to get help from a trusted real estate agent. With the agent’s help, this is how the homeowner will prepare to short sell their home:

    1. Agreement. The homeowner must get the lender to agree to sell the home at a loss.
    2. Documentation. If the lender agrees to a short sale, the homeowner will need to provide documentation to the lender indicating that he or she is financially incapable of paying for the loan. It depends on the lender, but the documentation usually required can include:

o    A hardship letter explaining why the homeowner is unable to pay the mortgage.

o    Recent tax return forms, W2 forms, and/or 1099s.

o    Recent paystubs.

o    Financial statement detailing list of assets and liabilities.

    1. Consultation. The last thing a financially stressed homeowner needs is more financial stress. The homeowner should consult with an attorney to find out whether or not difference between what the home is worth and what the home sells for will be taxed.
    2. Communication. Everyone needs to communicate during this process. The homeowner needs to communicate with the lender to make sure the lender has everything needed to apply for the short sale. The homeowner and the lender need to be in constant contact with potential buyers to make sure they stick around.

5.  4. How Can My Agent Help Me During a Short Sale?

6.  If you wish to short sell your home, your agent is your best asset. As soon as you fall behind on mortgage payments and the threat of foreclosure sets in, talk to your real estate agent about getting help with a short sale. If your agent doesn’t offer to help you with a short sale, find an agent who will.

7.    When applying for a short sale, your lender will require some documentation from you proving your financial hardship and your inability to pay your mortgage. (The documentation varies by lender, but it could be past pay stubs or tax forms.)

8.    After you gather this information, there will be a considerable amount of of short sale paperwork. This is where your agent comes in. Your agent can be an asset by filling out all of the short sale paperwork. Once you turn the sale over to them, they can shoulder the work for you.

9.  5. What If My Lender Refuses My Short Sale Request?

10.               The most common reason for a lender to refuse a short sale request is loss. That is, the lender will refuse a short sale if their calculations suggest that they will lose less via a foreclosure. If this happens to you:

11. Step 1: Demand a written letter from the loan servicer explaining exactly why the request has been denied.
Step 2: Figure out and write down the projected losses you’ll experience if the home is foreclosed on as opposed to sold as a short sale.
Step 3: Notify the company handling the loan that if the house is foreclosed on, you will be suing them for the damages you documented in Step 2.

Step 2: Figure out and write down the projected losses you’ll experience if the home is foreclosed on as opposed to sold as a short sale.

Step 3: Notify the company handling the loan that if the house is foreclosed on, you will be suing them for the damages you documented in Step 2.

12. If you follow this procedure, you should be in the clear either way. Either your home will be sold as a short sale like you previously wanted, or you will have the potential to regain your losses after foreclosure from the lawsuit. Your best strategy for navigating the short sale process is to work with a qualified agent who can assist you. The agent will help you work through the process and/or any contingency plans.

13.               6. Who Pays My Agent When I Short Sell My Home?

14.               Because a short sale usually comes about in a financially trying time, the standard realty fees can be a concern. But the homeowner need not worry about the financial strain of short selling his or her home.

15. When the lender agrees to the short sale, the real estate agent begins to market the home to potential buyers. At this point, the homeowner is only required to allow potential buyers view the home.

16. When the home is sold, the commissions are paid from the money the buyer places in escrow; therefore, because there is no equity in the house, the lender ultimately is the one paying the entire sales commission.

17. Since lenders are already losing money on the sale, it’s common for them to offer less than the average sales commission to the real estate agents involved.

Shirl A Thornton
Shirl A Thornton
Real Estate Professional