WHAT IS A SHORT SALE?

 

 

Definition: A “Short Sale” is when the lender agrees to a accept a payoff for less than the remaining mortgage balance, and possibly forgive the entire shortfall, as well as pay the seller’s closing costs including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement is made with the borrower (promissory note), or a lump-sum for a potentially lesser amount is agreed to (cash contribution).

Why Would A Lender Accept a Short Sale? Banks don't want to own real estate. A foreclosure can cost a lender $30,000 to $60,000. They have to maintain the property, market the property, pay for utilities, then spend money on closing costs. They would rather do a Short Sale- where the groundwork has been done for them and generally costs them less than a foreclosure.


 

STEPS TO A SHORT SALE

  • Provide a Letter of Authorization for permission to speak with your lender on your behalf. The letter should specify the property address and loan number. I will also need the last four digits of your social security number for verification with your lender. You or I will ask the lender if they will consider a short sale before beginning.
  • I will place the property on the market for fair market value. Most lenders will only consider offers that are at least 75%-85% of what the property appraises for, based on their independent appraisal, and the criteria of the end-investor on your loan.
  • When we get an offer, I will ensure that it states it is "contingent on seller's mortgage holders' approval".
  • You may counteroffer the buyer at this step, as we don't want to send an offer to the bank that we think will be rejected.
  • I will package up the contract with the following documents and fax or express mail them to your lender:
  • Buyer's pre-approval letter
  • Hardship letter which explains why you need a short sale
  • Financial worksheet itemizing your income and expenses
  • Most recent tax returns
  • Most recent pay stubs or quarterly profit and loss if self-employed
  • Most recent bank statements
  • Copy of the listing agreement
  • Estimated net sheet or HUD-1 Settlement Statement and other documents
  • Expect to wait 30 to 70 days for a response from the bank. They will be ordering an independent appraisal or Broker Price Opinion on the property to ensure the offer is for fair market value. If the value is higher than the offer amount, they will counter-offer at the appraised price.
  • If there are two lenders involved, or a Private Mortgage Insurance company (PMI), then I will facilitate the negotiations between them focusing on a fully approved sale on your behalf.
  • If the lender deems you have sufficient income or savings, they may ask you for a cash contribution or promissory note, usually at favorable terms, to mitigate some of the loss.
  • A lot happens behind the scenes, rest assured, I will be following up on a successful sale for you every step of the way.


 

WHO QUALIFIES FOR A SHORT SALE?

Most lenders will consider allowing a Short Sale if there has been a change in circumstance after the loan was initally obtained which prevents the borrower from making payments.

Some of the possible reasons:

1. Loss of income

2. Divorce

3. Job Transfer

4. Medical Bills

5. Mortgage Rate Reset

The lender will want a Hardship Letter explaining what happened to cause the inability to keep up with mortgage payments. An unsatisfactory reason would be "the market has declined".

If a seller has substantial savings, the lender may ask for a "contribution" to offset some of the loss. Additionally, the lender may ask for a "promissory note" if the borrower shows a good income stream, often at a favorable rate and terms.

 

 

Alternatives to a Short Sale:

1. Forebearance: Your lender will allow you to delay making payments for a period of time, but will add these payments back to your loan. They may be added to the end of your loan, or with a separate payment plan.

2. Re-Amortization: Your lender may add missed payments to your balance, and recalculate a monthly payment taking into account the missed amounts. For example, if you owe $200,000 on your mortgage, and you have missed $4000 in payments, they may recalculate a new monthly payment based on $204,000 mortgage. This will increase your payments somewhat.

3. Re-Finance: Your lender may agree to change the terms of your loan in order to reduce your monthly payment.

4. Deed-in-Lieu of Foreclosure: You give your lender will take title to the house and may agree to waive a deficiency judgment against you. This is still recorded as a foreclosure on your credit.

5. Foreclosure: Proceeding in which the mortgage holder sells or repossesses your property. The lender may then seek a deficiency judgment against you for the unpaid balance.