What is a Short Sale

A short sale brings together an agreement made by the lender, investor and mortgage insurer to satisfy any delinquent mortgage, and to sell it to a third party for a value that is less than the current amount owed. Because of the economy, there is a large incident of these types of pre-foreclosure sales. In fact, many lenders are reevaluating their stipulations for reestablishing credit after a consumer chooses a short sale.

Although a consumer can qualify for a short sale, even though they have a job and income, homeowners must also meet hardship and financially prerequisites to qualify for a short sale. Although the process of a short sale is not always pleasant, consumers must agree to follow through with the short sale once the process begins. This includes providing information that states that a consumer can no longer complete the mortgage debt that is owed.

Acceptable Hardship Lists

• Uncontrollable health status
• Added mortgage interest rate (ARM loans)
• Predatory borrowing and lending practices
• Divorce
• Overextension of budget (purchase a home without ability to afford it)
• Loss of job or wages
• Distressed seller (a wider range of possible hardships)
• Upside down economic market
• Declining value of home
• Pre-foreclosure status (several months behind on mortgage payments and received a notice)
• Incarceration
• Increased tax or insurance and related debt
• Military service
• Medical bills
• Inherited debt
• Uncontrollable damage to property
• Job transfer

Why Choose to Apply for a Short Sale

The length of a short sale is more attractive than the process of foreclosure. Because of this shortened process of selling their home, many homeowners choose to take the risk. Lessening the impact of credit score issues is another reason why homeowners choose to go through the process of a short sale. Further still, the short sale also keeps the seller from owing the complete balance on their home.

Owning a home at a novel-discount price is also a sweet advantage for those that purchase properties that are in a process of a short sale. Yet, there are other reasons why buyers may choose a short sale over a foreclosure. One reason that buyers choose to purchase a short sale is that they don't have to go through the arduous process of removing the seller from their future property.

Mortgage lenders also benefit from the process of a short sale, especially when they avoid the lengthy foreclosure procedures. Furthermore, with a short sale, lenders get a portion of their money back, and take the easier road, by letting the homeowner sell the home.

• The Value of the Home Has Dropped

Consumers must present factual evidence that the home's value has diminished, beyond the current balance owed to the lender.

• The Mortgages in or Close to Default Status

Previously, most lenders would not take a look at homes with up-to-date payments for a short sale. However, this practice has changed. Now, lenders understand that many factors can contribute to a mortgage default status, and now lenders are more excited to avoid problems as soon as possible.

• The Seller has Reached a Point of Hardship

The seller can present a letter of hardship, which can explain why the difference in the balance owed cannot be paid, and any reasons why the seller has stopped making payments

Preparation for Buyers

There are several pieces of important and detailed information that buyers considering a short sale should have in their possession before they approach the seller. Consumers need to check public records to find out information like title status and when a foreclosure notice was given. The amount owed on the property is also vital information that potential buyers need to know. With this type of information buyers can better determine the amount to present as an offer. Prospective homeowners should also consider hiring a short sale agent with an adequate track record of experience. Short sale agents can help consumers speed up the transaction process and will capture vital information necessary before heading to the close. Buyers also need to understand that once a seller approves an offer, it still must be sent to the lender for a complete approval.

Preparation for Sellers

The seller of a short sale property must gather several documents to begin and complete the transaction process if a buyer is found. This includes gathering information like legal advice from an experienced real estate lawyer and gathering potential tax consequences from the short sale process.

The seller must also present the lender with a letter of authorization, so that the lender may disclose information such as the consumer's name, property address, loan reference number, the agent's name and other vital facts. Short sale property sellers will also need to create a net sheet, which has the expected sale costs, outstanding payment and late fees that are due, real estate commissions, and the leftover loan balance information.

A letter of hardship will also need to be presented to the lender, which may include information about hospitalization, traffic accidents, deaths in the family, and other information that explains the consumer's financial bind. A presented statement of assets and income and liabilities is also necessary. Consumers need to include current market analysis, statements from the bank and previous listing and purchase agreements

Short Sale Lender Information

Although issues may surround short sale lenders, including the lack of experience and the absence of a precise and uniform application process, some lenders do have streamlined mitigation departments, which can evaluate these types of potential transactions. Within these streamlined offices, these departments usually have consumers go through a prescreening process before transactions begin. This includes obtaining information like the Broker Price Opinion (BPO), the remaining equity amount and other information which will help them determine the minimum price for each short sale property.

What it Takes for Approval and How to Get Beyond Stipulations

Depending on the types of lenders involved with the short sale, there may be several levels of qualifications a consumer has to leap over before they get the final approval. This may include dealing with more than one lenders approval, especially if there is a second mortgage involved. Consumers may also have to overcome a short sale rejection, by taking care of other lien holders including mechanics and tax lien holders who have priority.

Consumers still need to prepare to have their desired short sale go through a normal home inspection, just like if they were purchasing their home through the traditional sales process. This also includes watching out for extreme problems with the home which can eat up further equity. If a consumer finds that large problems do exist, then they can have their agent negotiate the fixes into the sales price, or come up with another solution.

Changing Consent

There are many scenarios that can occur while a short sale is on the market, and it is something that any potential buyers need to know before they engage in the process. Before the close of a short sale either side can change they mind. A change of consent or agreement can include renegotiations by the lenders, which may request more money. It also, could mean that the purchaser of the short sale can ask for a lowered price on the home, depending on what they find after home inspection.

Sometimes, a second mortgage holder may ask for more money back before the close. The original homeowner may back out of the deal and relent to the foreclosure process. Sometimes, even when a bank has agreed to a short sale they may back out of the deal, because the seller has renegotiated and came up with last-minute funds.

Buyers should also be aware that they may not receive any returns in funding for things like inspections, agent fees or for any other paid services. Even so, deposits on a short sale are usually returned if the bank or seller back out of the proceedings. Furthermore, buyers can find clues that a potential short sale is worth the risk by checking to see if the buyer has moved out of the dwelling. If they have, this may be a clue to buyers that the seller is not really willing to negotiate with the bank or other lenders.

Getting a short sale approval also means prepare to abide by any possible legal issues regarding the home and abiding by insurance requirements. Although the short sale process is usually shorter than going through a foreclosure, consumers must still understand that it does take time to going through each step. Therefore, consumers can have their agents explain to them the time allotment for each step, and they must keep in mind that the completion of short sales can have various time requirements.

The Difference in a Short Sale and a Foreclosure

In most cases the bank is more in favor of a short sale than a foreclosure for two reasons. With a foreclosure, the bank is usually taking possession of the home as a last resort due to inconsistent and absent mortgage payments. Next, the bank has to go through the trouble of putting the home back on the market. Yet, with a short sale, banks allow the consumer to sale the home at a reduced price, before any foreclosure proceedings are completed. Although it is not always a pleasant choice, completing a short sale, instead of a foreclosure, is always more advantages to everyone involved in the end.

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