A few years ago, the term short sale was not a term the general public was aware of. In fact many real estate professionals had little experience or knowledge of them unless they practiced real estate in a down market. And even if they have experience, the rules of the game have changed and are ever-changing.
In a nutshell, if you sell your home for less than you owe, you are participating in a short sale. Not only do you have to come to an agreement with the buyer, your lender must also agree to take less than you owe them.
How is this accomplished? Well, the first thing you should do is contact your lender to let them know you are having difficulties making your payments. They may be able to modify your loan so that you can stay in your home or they may agree that a short sale may be the best option for you both. There’s no way of knowing unless you pick up the phone and call.
Before you make that call, have your ducks in a row!
Gather two months bank statements, pay check stubs, bills and mortgage statements so that a complete financial picture is painted for your lender. If you have an equity line or second mortgage, don’t forget to include that information as well.
Write a Hardship letter outlining your hardship. Tell the lender why you can’t make your payment. It must make sense. Hardships are things like medical issues, job loss, divorce and other events that changed your ability to make your payment.
Talk with your lawyer and CPA about the possible ramifications of selling your home for less than its worth.
Contact a real estate agent to find out what your home is worth. They will create a Market Analysis painting a picture of your home’s current worth. Your lender needs to know the fair market value of your home to help them make their decision.
A good Realtor who has experience with short sales will guide you through the process. You will sign a letter giving them permission to speak with your lender. Your Realtor will have direct contact with your lender and will submit your paperwork for you. Speaking of paperwork, each and every page you or your Realtor sends to the bank must have your loan number and name on it. I have it at the bottom of every page of the package I submit.
Your Realtor will list your home on the MLS, notifying other Realtors that the listing is a short sale.
Why is this important? Because you want a buyer who understands that the process is different from a traditional sale and that although you’ve come to an agreement with the buyer, the bank must still approve the sale.
You want a buyer who is financially qualified to purchase your home and one who is willing to wait for the bank to make a decision. Your Realtor will talk with the buyer’s Realtor about the progress with the bank. It may take weeks to months before the bank makes a decision. You need a buyer that really wants to buy your home and one who is willing to wait.
Your lender may approve the short sale before you have a buyer but many times, they won’t start the process until after you are in contract with a buyer.
Your lender agreed to the short sale. Now what?
It’s time to take the letter from the lender back to your lawyer and CPA. Why? You need to know all of your options before agreeing to finalizing the sale. The lender is releasing you from the lien so that the house can be sold but did they release you from the deficiency? Meaning, can they come back at a later date and ask for the shortage or will they settle the debt for less than is owed?
If the letter doesn’t say the debt is satisfied, you can always go back and ask them to change it. Some lenders will change it, some won’t. It doesn’t hurt to ask.