Home > Real Estate > Why and How to Pursue a Short Sale

Why and How to Pursue a Short Sale

July 22, 2011

short sale

Homeowners who are struggling financially to pay the monthly mortgage might be facing foreclosure. Lenders who wish to avoid the expense of going through the foreclosure process may agree to a short sale of the property. The homeowner can sell the property to another party if the lender agrees to accept less than what is currently owed on the loan. While the real estate short sale process may appear complicated, many lenders are working to make the process easier. Banks are more inclined to accept a real estate short sale because the homeowner does most of the work.

The Short Sale Process
If you are interested in pursuing a real estate short sale, outlined below are the steps required to complete the process:

• Upside Down on Mortgage—The ideal candidate for a short sale is a borrower who owes more on the loan that what the home is worth. Lenders will not agree to a short sale if there is enough equity in the home to at least break even on the loan.

• Hardship Letter—The hardship letter should contain facts about the borrower’s financial difficulties. This could be due to divorce, reduced income, unemployment, a medical emergency, death in the family, bankruptcy or the need to relocate for business or personal reasons.

• Documentation Package—Borrowers should prepare a detailed set of documents containing financial data that supports the need for a short sale. This package of documents must be submitted to the lender. Each bank has specific guidelines about what documents are required. Typically these include tax returns, payroll stubs, a complete financial statement and an authorization letter that lets your agent speak to the bank. If you fail to follow the bank’s instructions, this could result in a delay or lead to a rejection of your short sale request.

• Submitting the Documents—Before you submit the documents to the bank, ask your real estate agent for a list of comparable sales in the area. The bank will want to receive an amount that is close to the current market value. The comparative market analysis should include comparable homes sold within the past six months.

• Negotiating With the Lender—Once the bank receives the entire package, a negotiator will be assigned to the case. Prior to the lender approving the short sale, the borrower may need to provide additional information about their situation and what has led up to the financial hardship.

• Closing Requirements—If the bank approves the short sale, closing the deal needs to happen within a short amount of time. Most banks require escrow to be completed within 30 days. Sometimes the house falls out of escrow because the buyer gets impatient. If this happens, the good news is that you already know what the lender is willing to accept in a short sale. Getting a new buyer approved may not be as lengthy if your circumstances haven’t changed and the market conditions remained the same.

Some real estate short sales happen within six to eight weeks, while other may take up to five months. Generally, the agent usually has some idea of when an approval will come from the bank once the package has been sent for final review. The primary benefit of a short sale is that the borrower is free from the majority of the loan and avoids the detrimental effects a foreclosure would have on his credit rating. A financial arrangement can be made to pay off the remaining balance if the lender is not willing to forgive this portion of the balance.

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