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If you are in financial distress and can longer afford to live in your home, you may be considering a short sale. Short sales can seem mysterious and challenging. What is involved? Who qualifies? What if the mortgage amount is more than the home is worth?
We are here to answer your questions and shed some light on the process. Each bank approaches short sales differently. It can be a hard process to navigate. That's why you need a team looking after your best interests.
A short sale can occur when the home owner owes more on a house than it is worth. The home owner and bank must come to an agreement with the bank taking a loss. The lender will either forgive the debt or get a deficiency judgement against the borrower that requires the seller to pay all or part of the difference between the sale price and original mortgage debt.
It is important to note that the lender is under no obligation to accept a short sale. It is only allowed at the bank's discretion.
In order for a lender to consider a short sale, there must be a relatively new source of financial trouble, not an ongoing problem undisclosed during the original mortgage process. Banks are also highly unlikely to consider a short sale if finances have simply been mismanaged. Examples of qualifying troubles could be divorce, job loss, or health problems.
Most banks will not consider a short sale until the home owner is actually in default on their mortgage. Each bank will have different rules on this. Some will require multiple missed payments.
As stated before, even if a homeowner is absolutely certain they are headed for default, most banks will require missed payments before they will even discuss a short sale or the their short sale process.
If the lender believes they can get more money for the home by foreclosing, they are likely to foreclose no matter the source of financial trouble. Their main objective is to recover as much of the funds as they can.
If a mortgage is co-signed, the bank may choose to hold that person responsible for the mortgage instead of negotiating a short sale.
Do you pay PMI on your loan? If so, there are certain cases where they will advance funds in order to keep payments on track. This would help only in terms of short term financial troubles.
Additionally, the home owner may be eligible for a loan modification.
Make sure you check into all of these issue before you decide to pursue a short sale.
One the biggest obstacles to negotiating a short sale may very likely be finding the right person to talk to at the bank. Don't just talk to a customer service representative! They have no actual authority in these situations.
Ask to speak to the loss mitigation department. You may have to work your way through the phone ladder, but they will be able to point you in the right direction. Since short sales are at the bank's discretion, you may just have to find the right person. If you don't get anywhere with the first decision maker, call back another day at another time and speak to someone else. Your main objective in these phone conversations is to find someone to email you a detailed list of documents needed to apply for a short sale. This will vary bank to bank.
At this point you will need to consult with a real estate agent, attorney, and a tax professional. Don't be discouraged by the fees required. You must have these professionals in order to complete the short sale process. They are used to these situations. It's their job. They will help guide you in paying any fees.
This is one of the most important steps! You will need to submit a letter of authorization. It will make the process much smoother. This letter authorizes the lender to speak with your real estate agent, closing coordinator, title company, and lawyer. It should include the following:
Putting together the short sale proposal will be up to you. Gather all of the documents needed for your short sale proposal (listed in the email you had your lender send.) Even though the list will vary bank by bank, there are some general requirements that every bank will include. Every document in the proposal must be in order for the bank to consider the short sale.
This is where having an experienced real estate agent will be invaluable! Our team will be here to walk you through each step.
The proposal should include:
One of the biggest questions for those considering a short sale is, "How will this affect my credit?" That's hard to answer. A short sale will effect your credit. A lot depends on how many months of mortgage payments were missed. They can show up as delinquent payments on your credit report. However, it is up to the bank to report these, so it's in your best interest to convince the bank not to report the missed payments while negotiating the sale. Again, this is up to the discretion of the bank. The sooner you applied for a short sale the better. If you waited months before presenting a hardship letter, they may be less likely to work with you. The good news is even though your credit will be affected, it will be significantly less than foreclosure!
Another important fact to note is that the IRS can count the debt forgiveness between what you owed and what you paid back as taxable income.
All of this may feel like information overload in what is already a stressful situation. As your real estate team we will be ready to walk you through each step of the process.
Having a third party you can rely on will be invaluable! We know how to sell homes and how to sell them quickly. Contact us today and see what we can do for you!
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