Many people don’t know what a short sale is until they find themselves in a situation where they need to utilize one. I’m here to explain what they are, the details of the process, and how I can make them go as smoothly as possible. A short sale occurs when a lender agrees to the sale of a property at fair market value even if the outstanding mortgage against the property is more.
Goal of a Short Sale
Ideally, the lender forgives any balance due on the loan after the sale goes through; the borrower is no longer responsible for the remaining mortgage balance.
Although this isn’t always the case, to ensure the homeowner gets the best deal out of a short sale, they need to follow these steps:
- Find an agent that has experience in short sales (very important)
- Get the home fair market value
Guide to a Successful Short Sale
The homeowner must be upside-down on their loan—that is, they owe more on the mortgage than the home’s fair market value.
This makes the first step critical—the value of the home must be established from the beginning.
The homeowner must prepare a hardship letter detailing the reasons why they are unable to continue making mortgage payments. Drafting this compelling letter should be one of the first steps of the short sale process. The short sale won’t be successful without it.
Contact the Lender for a Short Sale Package
Lenders won’t talk to investors, potential buyers, or real estate agents unless they’re first instructed to do so by the borrower or homeowner. The homeowner will want to get the approval of all necessary parties in advance and in writing before anyone contacts the lender. Then they can submit these consents along with the application and the short sale package.
Assemble the Short Sale Package Together
The more comprehensive the short sale package is, the better. Gather and photocopy all the information received and submit it to the lender.
The meat of the short sale presentation should back up the statements made in the hardship letter. Prepare a thorough and detailed short sale package of documents and financial data to support the claim that a short sale is a good solution for the lender. Bank statements, proof of income (or lack thereof), proof of the value of any assets, credit card or other loan statements and tax returns can be used. Additional examples include proof of a death in the family or illness. Be sure to use anything and everything that will substantiate the information outlined in the letter.
Negotiate the Short Sale and Closing
Ultimately, one of four things will happen after the loss mitigation review. The lender will approve the offer and issue a letter outlining its terms for the deal or it will reject the offer outright. Lenders might also reject the offer contingent upon certain circumstances that can be remedied, indicating that it will approve the deal if the remedies occur.