If you have decided to short sale your home, you will want to know what is the process of a short sale. Before we learn what that process is, let’s make sure we know what is a short sale?
A Short Sale is…
selling your home for less than what is owed. In other words, the current market value of your home has significantly decreased and the current outstanding amount owed outweighs the value. If you’re struggling to make mortgage payments and you cannot qualify for a HAMP,or any of the MHA loans, avoid foreclosure by short selling your home. Your lender must be in agreement and approve the short sale of your home. Make sure you learn the obstacles and victories of a short sale and read Should I Short Sale My Home?
The Short Sale Process is Slow
Speaking from experience as a realtor, it’s a long, slow process. Why? Because lender approval is required prior to closing the transaction. Lenders tend to move slowly because of the high volume of foreclosures, the downturn of the economy and the legal issues they face with the government, investors and the consumers. Foreclosure fraud has played a major role in stopping and slowing down the progress of the real estate market and mortgage lending.
Nevertheless, be sure that you have asked the question “Should I Short Sale My Home?” This question will force you to consider all the pros and cons of a short sale. Once you have made a decision, it will be necessary to familiarize yourself with the basic 7 steps to a short sale.
7 Steps to the Short Sale Process
Short sales are never simple because lenders often times take months to review and approve. Therefore, relax, prepare yourself for a long haul and plan to save some money for your transition. Here are the 7 steps to a short sale.
- Contact the loss mitigation department to obtain permission to short sale your home. Most lenders will accept your offer to sell… provided the short sale is less costly than a foreclosure. However, if your lender does not approve a short sale and you want “out,” then offer a deed-in-lieu of foreclosure.
- Your lender will send a short sale package requesting the following information:
- A hardship letter that explains the cause of the hardship
- 2 years tax returns
- 2 months of pay stubs
- 3 to 4 months of bank statements
- Documents from your realtor describing their marketing strategy, leads,photos, repairs, etc.
- The listing agreement, prelim title report, signed offer, HUD-1 settlement statement, approval from all junior lienholders.
- Hire an experienced short sales real estate agent that has closed several short sale deals in the past 12 months. Select an agent that understands loss mitigation and will be able to effectively communicate with your lender.
- Put the house on the market for sale. Here’s a tip: Your home should be sold at a price that will net the lender between 78-82% of the homes current market value. So, do not set the price too high and not too low. Your real estate agent should be able to provide you with sold market comparables and listings to arrive at an accurate fair price.
- Second/Junior Lienholders, lines of credit, or equity loans will probably lose their investment since their equity position has been diminished.
- Find a qualified buyer with strong assets, few contingencies and pre-approved by a bank/lender. Cash buyers are always the best because the deal can close in a few days with quick approval from your lender.
- Get approval from your lender and close the deal.
By short selling your home the lender will receive less than what you currently owe and may require a deficiency payment from you. However, a non-judicial type sale will not allow deficiency payments in most states. (See my Chart of State Foreclosure Process)
A deficiency payment is the difference between the sold price of your home and the remaining balance of the outstanding debt. Example, your current outstanding balance is $300,000, the house sold for $250,000 The remaining balance is a deficiency amount of $50,000. ($300,000 – $250,000).