You may have hard the term “short sale” before. A short sale is defined as when the proceeds from the sale of a house will be less than the balance of any debts and liens that are on the property. In these cases, the lienholders (typically mortgage lenders) must be negotiated with to release their lien on the property for less than what they are owed.
Short sales often occur when a homeowner is behind on payments and facing foreclosure. Although the foreclosure process does NOT have to have been started in order to do a short sale, the homeowner must almost always first be behind on their payments and be incapable of paying off the loan.
Short Sales are a way of saving a house from going to foreclosure, and saving a homeowners credit from foreclosure. A short sale, while not fun, can be less stressful than a foreclosure as well.
When should a short sale be considered?
Short sales should be considered a last resort option before going into foreclosure. The borrower/homeowner must convince the lender that they are incapable of repaying the loan balance and any fees/penalties that have accrued. In industry terms, the borrower must demonstrate their “hardship” that prevents them from paying the loan.
How does bankruptcy affect a short sale?
A home can be short sold while the homeowner is in bankruptcy. There is typically no equity in a home that needs to be short sold (by definition), so that is not much of a reason why the other creditors would care. That being said, this is an area that has other implications, and you will need to consult with a bankruptcy attorney or other suitably knowledgable individual. Ultimately, every situation is different!
Why would a lender agree to do a Short Sale?
When you consider how expensive and time consuming a foreclosure is, short sales are often a faster and cheaper alternative for lenders. They are also in the lending business, not the house owning business, and don’t necessary want the liability of having to take care of yet another vacant house.
Are short sales guaranteed?
Ultimately, the decision to do a short sale is up to the lender (either the bank servicing the loan or the party that actually funded the loan). Because of this, short sales are not guaranteed to be approved. There are different scenarios where a short sale is either more or less likely to be approved, so consult with a professional with short sale experience to discuss your situation.
How does the process work?
Most lenders these days have their own defined steps, processes, and departments handling short sales. However, there are some general similarities among them all.
For the homeowner, most of the work is required up front to gather various financial and legal documents and letters, etc. Here are some common steps for a short sale process:
1) Letter of Authorization: This letter is required so that the lender can discuss your loan and negotiate with an authorized party, typically a real estate agent (short sales often require you to list your house on the market during the process) or in some cases an interested buyer.
2) Hardship Letter: This is a detailed letter that that homeowner writes discussing their “hardship” and why they are no longer able to make the payments on the loan.
3) Financial Documents: This typically includes an income and expense form, recent bank statements, recent tax returns, and recent pay stubs. The bank wants to know that the homeowner does not have significant assets and is not behind on the loan payments by choice.
4) Property Appraisal: The bank will order what is referred to as a “BPO” (Brokers Price Opinion) to get an understanding from a third party of the value of the house.
5) Contract: You will sign a contract with the party making the offer to buy your house. This will start the negotiations directly with the bank. These negotiations are typically handled by either the real estate agent or the buyer themselves.
While Short Sales should always be considered a last result, they are an important tool for a homeowner to be aware of, especially in cases where foreclosure may be imminent. A short sale can save a homeowner from significant grief, stress, credit damage, and embarrassment that results from going through foreclosure.
If you think a short sale might be right for your situation and would like to discuss your situation with an experienced professional, call us a 205-390-1050. We Buy Houses in Birmingham in all types of situations, including short sales. We short sale houses in Birmingham frequently. Short sales are a way to Stop Foreclosure, so call ASAP you believe foreclosure may be near. Even if we can’t help in your particular situation, we can offer suggestions for what may work best for you. You can also submit information to us via our website at www.WeBuyBHam.com. So call 205-390-1050 or click today!