Homeowners who are in a pickle concerning making monthly mortgage payments may discover themselves facing the tragic consequences of bankruptcy or foreclosure. However, there is another option known as a short sale that West Terrace homeowners can consider, but the process is complex, and there are numerous requirements to even qualify for one.
First and foremost, the home must currently have a market value below what is owed on it, which is known amid the industry as being ‘underwater.' That being said, lets move on to what a short sale is and the steps sellers should take to successfully navigate the process.
What Exactly is a Short Sale?
The short sale process can allow buyers with an underwater mortgage an opportunity to avoid foreclosure. The homeowners must make arrangements with their lender who either will or won't agree to allow the property to sell for a fair market value even though more is owed on it than what it will go for. It is the underwater aspect that is necessary to get approval for a short sale.
Ideally, the lender will take those efforts in good faith and will forgive any remaining balance that is due after the sale closes. Did we mention that finding a buyer is a part of the short sale process, too? However, that won't be an issue typically, because many buyers are eager to purchase a home selling below fair market value and are workable with the short sale process. The key to success in a short sale is getting through the approval process with the lender, which we will cover next.
Step 1: Getting a Valuation Analysis of the Property
If the home is likely to sell and break even, lenders don't want to deal with a short sale. While they do want to get as much on the deal as they can and avoid the costly foreclosure process, lenders are more receptive to short sales when homes are underwater. For this reason, an assessment of the property's value is the first step. Most real estate agents and solicitors can provide a comparative market analysis, and brokers can provide their opinions in formal documents to show the lender.
Step 2: Get a Hardship Letter
Sellers must put together a rather convincing letter specifically stating the hardships that have brought them to the point of possibly filing bankruptcy or being foreclosed on. Lenders want to know why you can't pay anymore and need a short sale. Essentially, any issues that can be resolved fairly quickly will not be considered a hardship. Rather, lenders are looking for more serious issues such as a death, major illness, divorce, long term unemployment or an uninsured loss.
Being a bit emotional is okay, but keep the letter limited to a page or so and fill it with every detail of the situation at hand. Include pertinent information, including income problems, lack of assets, outstanding and overdue debts and reasons why another loan or cash cannot be obtained. Bringing out the ‘big guns' and being forthcoming in the hardship letter is likely to reap a better response towards approval.
Step 3: Get a Short Sale Application from the Lender
For legal reasons, lenders cannot consult with potential buyers, investors or soliciting agents without expressing consent from the homeowner. Therefore, an application from the lender must be obtained that will give them such permission. Be forewarned that lenders aren't excited about short sales, and it may be necessary to make the request many times before getting a response.
Step 4: Get the Sales Contract Prepared
About that sales aspect mentioned earlier: step 4 is when it's time to get serious about getting a solidified offer from a pre-approved, qualified buyer. A contract should be prepared, and the buyer needs to know the sale is wholly contingent upon the lender approving of both the buyer and the short sale contract. To ensure that participating parties aren't in cahoots with one another to ‘scam' the lender, an arm's length affidavit may be required.
Step 5: Assemble the Short Sale Package Together & Submit for Review
Take all the information compiled: the hardship letter, photocopies of supporting evidence (including the CMA or BPO appraisal) and at least one buyer offer. A loss mitigator will then review the short sale package to determine if the short sale will work in the lender's best interest, and to some degree, the sellers, too.
Step 6: Negotiating the Short Sale and Closing
After review, the offer could be approved, rejected outright, rejected with contingencies upon remediation or not responded to at all. If the short sale is approved, the lender will send paperwork with the response outlining the details and the next steps to be taken. Once the details are ironed out by the seller's and buyer's representatives and the lender, the loan will be paid off and the remainder either forgiven or due in payments to be made by the seller.
As you can see, how a short sale works is complicated and best dealt with under the guidance of a financial or real estate professional in your local area.