UNDERSTANDING SHORT SALES
Below are the must-know questions and answers if you are considering the possibility of selling your home via a “short sale”. Not all short sales are created equally, so it is best to review this information with your real estate agent.
What is a short sale? A short sale is when a seller is selling “short” of what’s financially owed on the house. They have suffered a “financial hardship”, and they are no longer able to keep up with their mortgage payments. There is a pretty lengthy list of “financial hardships” that can qualify a seller to sell short, but without qualifying for one of these financial hardships, the bank holding the mortgage is unlikely to be approve of a short sale.
What is the purpose of a short sale? The purpose of a short sale is to help homeowners avoid foreclosure. The credit profile impact of a short sale may be less significant than experiencing a foreclosure. And with certain banks, the bank may offer a “cash for keys” program that provides the homeowner with a lump payment (could be several thousand dollars) to transition into more affordable housing.
Who covers the financial loss (deficiency) in a short sale? If a short sale successfully closes, many times the bank holding the mortgage will realize the financial loss…the difference between the mortgage balance and the market value. In some cases, the seller may have to pay some money at closing or agree to an unsecured debt in order to have the short sale approved. If the seller refuses, then a short sale may fall through even if the bank has issued conditional approval for the short sale. Every short sale is different, so sellers are encouraged to inquire about specific financial and tax implications through their tax accountant.
How long does it take to sell a short sale property? Because the mortgage bank has to review, research and approve any short sale, the timeline associated with selling a short often exceeds 10 weeks after a purchase offer is first received on a property. Therefore, it’s best to seek the help of an experienced short sale Realtor if you are regularly having trouble keeping up with your mortgage payments.
Below is a list of documents and items that will be needed in preparation for your short sale listing. This list is meant as a preparation and educative registry. If you have specific questions, please reach out to us for assistance.
1) Authorization to communicate with your mortgage bank – This allows your realtor and/or your short sale attorney to communicate on your behalf with your lending institution.
2) Financial Hardship Letter – This is a letter intended to describe your financial hardship. It is recommended that this be hand-written, and it should err on the side of being detailed…at least 1 page in length. This letter should:
- Detail the events or scenarios that have led to the selling of your home.
- Address “who, what, where, why, when, how long, and how much” type of information.
- Include heartfelt information and your efforts exerted to correct your financially distressed situation.
- Be signed and date by you at the bottom.
Example list “hardship” reasons:
- Loss of job
- Reduction in working hours
- Salary reduction
- Reduction in earnings (if self-employed)
- Failure of a business
- Physical (or emotional) disability
- Health-related expenses
- Divorce
- Bankruptcy
- Incarceration
- Natural disaster or catastrophe
3) Verification of Employment (or a copy of your last paystub if you are unemployed)
4) Financial Statement
5) Proof of Income (or employment) for past 2 months
6) Bank Statements for past 2 months
7) Tax Returns for past 2 years
8) Copy of most recent mortgage statement (for each mortgage)