Is a Short Sale Right for You? Learn More About How the Short Sale Process Works
For most of us who don’t operate in the world of real estate on a day-to-day basis, the concept of a short sale may be somewhat fuzzy. Most know that it’s related to a foreclosure, or has to do with being behind on your mortgage, but how does it differ? And what does it mean to sellers?
Unlike a foreclosure or bankruptcy proceeding, which can strip away your dignity and leave you with a sour taste in your mouth and poor credit, a short sale offers a cleaner departure from your home. No one wants to get into a situation where they may lose their home. And while short sales and foreclosures don’t happen nearly as much as they did from 2007-2011, they still happen fairly often. If you have found yourself behind on your mortgage payments, and have been for a while, you may be at risk of foreclosure or be thinking about bankruptcy. But, don’t let your mind go there yet.
A short sale is a better option if you owe more than your home is worth and you don’t think you’ll be able to climb out of the hole you’ve found yourself in.
What is a Short Sale and How Does it Work?
A short sale means you’ll sell your home to a buyer for less than the amount you owe. This is something that your lender will ultimately have to approve. If you’re new to short sales, you may be thinking “why on earth would my lender accept less for the house than what I owe them?” Well, trust us when we say that sometimes, your lender would rather short sale than endure a foreclosure. Foreclosing on your home from a lender’s standpoint means a lot of paperwork, legalities, and ultimately a hassle having to get the home sold once foreclosed.
But, we should also mention, that not every house or seller will qualify for a short sale. In some cases, a lender will not accept a discounted payoff. Here are some additional details about who qualifies for a short sale.
Here are some things that you can do to begin vetting whether a short sale could be your solution to selling and avoiding foreclosure:
- The first thing you will want to do is get in touch with your lender and have a conversation with the person responsible for short sales. In some cases, if you have an agent helping you try to sell the home, this is a step that they can handle. You will want to speak to the negotiator and plead your case as to why you should qualify for a short sale.
- If you’re having your real estate agent or lawyer contact your lender directly, you can get ahead of the game by supplying your lender with a letter of authorization. This letter will ultimately authorize the lender to speak about your private information with the respective third party you have selected to negotiate on your behalf.
- The letter should include your name, property address, loan reference number, date range applicable, and the name of the representative who will be contacting them.
- Next, you’ll want to provide your lender with a preliminary net sheet. This sheet is an estimation of what you think you’ll receive in selling the home after all of the closing costs, outstanding payments due and late fees, and any commissions paid out to an agent (if applicable). Again, this is another step that can be handled by a third party that you have hired to represent you.
- Then, you will need to craft a “hardship letter.” This is exactly as it sounds. Explain in detail the problems you encountered that led to the financial hardship you find yourself in. While it’s not always easy to put your pride aside and tell someone about the struggles you’re enduring, it really can help. Lenders aren’t soulless and can certainly understand how a medical emergency or lost job can have a real and unavoidable impact on being able to keep up with a home mortgage.
- Next, you’ll need to hand over your proof of assets and income. Lenders don’t like dishonesty, so don’t try to hide that savings account or avoid disclosing certain assets. Ultimately, yes, a lender wants to be sure that you can’t pay back the money owed and that a short sale is something that is best for both parties involved.
- If you have professional representation, the next thing given to the lender on your property is a CMA or Comparative Market Analysis. In some cases, like what we saw in 2008/9, property values drop significantly and therefore lead to your payoff amount being more than what you could get for the home. A CMA will usually include things like pending sales on the market, what’s currently active in your area, and also sales from the last six months.
- Lastly, to secure a successful short sale negotiation, you will need to provide your lender with a listing agreement and short sale purchase agreement once someone has placed an offer on your property. While the lender may refuse to pay certain fees or opt for renegotiation, this is the next best step towards a completed short sale.
As you can see, short sales do involve some do’s and don’ts. In order to be a candidate for a short sale, you also need to really be in a situation that warrants doing so. A short sale means that there is no longer any home loan lurking over your shoulder. You don’t walk away with cash, but you can walk away less burdened from the process. That’s what we mean when we say that short sales are a cleaner sale.
Interested in Short Selling Your Home, But Not Sure Where to Start?
If you think that you may be a good candidate for a short sale and you want to avoid foreclosure, then definitely take the next steps mentioned above in taking this route. It really is so much better for you in the long run and can alleviate a ton of stress. No one wants to see their home get sold off at an auction, with the scars to prove it for years to come.
You can start by contacting your lender directly or getting in touch with a third party who can represent you during the process. Whether this is an agent or a lawyer, or it could even be a company like ours- ensure that you hire someone who is well versed in short sales. While easier than enduring a foreclosure, short sales still require a lot of specialty skills (especially in the negotiation department).
If you want to short sale, consider giving our team a call. We can connect you with an expert short sale negotiator, and can ultimately be the buyer to set you free from the home. Because we have experienced countless short sale transactions with sellers in the past and can pay cash for homes, lenders find it easy to work with someone like us.