Short Sales Explained
Short Sales Explained
SHORT SALES DEFINED
Homeowners are defaulting on their mortgages at a record rate for a number of reasons (medical bills, divorce, adjusting rates, job loss, ect). Whether you are behind on payments now or foresee being behind on payments you should definitely consider a short sale. This is a proactive way to resolve your debt with the lender when dealing with a home that is no longer affordable and lacks enough equity for a normal sale. (Note: Be sure to checkout our list of 9 Ways to Avoid Foreclosure). Here are some factors to consider before starting the short sale process.
What is a Short Sale?
A “short sale” occurs when the net proceeds from the sale of property is not sufficient to satisfy the outstanding mortgage(s) on the property, and the seller does not have the financial ability to make up the difference. The lender is asked to take less than the full amount owed in order for the sale to be completed
What Causes A Short Sale?
In Most cases a short sale can be caused by an unforeseen change in the homeowner’s life, such as health issues, disability, divorce or loss of employment, which has dramatically affected the person’s income such that the mortgage payments are no longer affordable. Adjusting interest rates can also create a distressed situation where a short sale could apply.
Is A Short Sale A Great Option For A Seller?
A foreclosure has a much larger impact on person’s credit report and will have a haunting impact for years. A short sale is typically reported on a credit report as a debt that is “settled for an amount less than what is due”. This can impact your credit score some, but it will be nowhere near as harsh as the reporting of a foreclosure. (Checkout our Foreclosure Vs. Short Sale Resource)
Great Example Showing How A Short Sale Can Help!
Why Would A Lender Agree To A Short Sale?
Lenders are not in the business to own properties and want to loan money to as many paying homeowners as they can. There have been some estimates reported that banks can face $50k-$60k in costs for foreclosing on a property. The lender will typically save tens of thousands of dollars by working with the homeowner who continues to maintain the property and sell the home with a Colorado Springs Short Sale Agent.
How Does The Short Sale Process Work?
Most lenders have a short sale package with documents that the seller must provide to have the short sale reviewed for approval. Typical documents that we will need to submit are:
- Hardship Letter - Letter from the borrower explaining why they are pursuing a short sale.
- Seller Financial Statement - Shows borrower’s incomes and debts.
- Two Most Recent Pay Stubs - If you are self employed a P&L may be needed.
- Two Most Recent Bank Statements
- Two Most Recent Years of Tax Returns
- Purchase Contract - Executed Purchase Contract Between Buyer & Seller.
- Estimated Net Sheet (HUD-1) - Showing lender(s) estimated amounts per Purchase Contract
The completed package will be submitted immediately to the lender for review. A negotiator is assigned to the file who handles the short sale on behalf of the lender through closing. Don’t expect closing to take place quickly. It can take 60 to 90 days or even longer and really depends on the lender(s) to get final approval. Closing can be completed within 30 days of final approval in most cases. Click here to see how to start the process.