Foreclosures are an unfortunate fact of life for many mortgage borrowers. It is understandable that borrowers who have missed payments or who have gone underwater on their mortgages may be looking for ways to avoid being foreclosed upon. Fortunately, there are concrete steps that a borrower can take to avoid foreclosure.
David Stanger of Westmarq Real Estate Group explains the process of short sales and describes how this technique can help to preserve your financial future.
What is a Short Sale?
A short sale is the practice of selling a home for a price that is less than the amount owed to the mortgage lender. A “short sale” does not mean that the process is short in length, only that the price is lower than the amount owed on the home.
Short sales are useful for avoiding foreclosure. When you sell your property in a short sale, you do not have to go through foreclosure and eviction from your home. Short sales are damaging to credit reports, but nothing like the degree of damage done by foreclosures.
What is the Process Behind a Short Sale?
When a borrower wants to do a short sale, first they must secure the agreement and participation of their mortgage lender. Lenders may have difficulty keeping up with the large volume of short sale requests that they receive, especially in a declining market.
Realtors who specialize in short sales deliver the short sale “package” to the lender’s loss mitigation department. It can be tricky to get the package to the right person in preparation for processing. The bank may have objections to the terms of the short sale agreement. They may want to insert the bank’s price increase. They may want to reduce credits for closing costs. They may also want to alter the terms in a major way.
The short sales process is largely ruled by the banks, since they are the party that will lose money on the deal.
Why Would a Bank Agree to a Short Sale?
Banks make short sale agreements because they stand to lose less money from a short sale than from foreclosure or bankruptcy. With a short sale, they will at least keep a part of their proceeds. The process can be long and convoluted, and it requires a great deal of skill from your real estate agent.
The Process of Securing a Short Sale
The first thing you need to do if you want to perform a short sale is to approach your lender as soon as possible. If you are having trouble making your mortgage payments, you will need to list your home with a good real estate agent immediately. If your agent tells you that you are going to sell your home for less than you owe on the mortgage, contact the lender to start the short sale process.
Work to get the figures on how much of the mortgage the lender is willing to forgive. This will give you a better chance of finding a buyer who will get a bargain that will be approved by the bank.
The next thing you need to do is make written authorization to your real estate agent to negotiate for you in this matter. You will need to stay on top of all communications between the lender and your agent and make sure that they are acting in your best interests.
Your agent will need to write a cover letter detailing the buyer’s information, their down payment, and anything else that will make the lender more likely to accept the deal. If the buyer is a first-time homebuyer, they will be more likely to receive acceptance from the bank.
You will need to write a hardship letter to the bank. They are best received when they are handwritten. You will need to make your case as to why the bank should forgive part of your loan. Include any extenuating circumstances and that you are considering bankruptcy.
This is the time to bring out all the variables that could cause you to consider bankruptcy, including medical issues, bills, and other hardships. The bank would far rather accept a short sale than write off your entire mortgage in a bankruptcy.
Finally, you will need to make sure that all of the information you submit to the bank as part of your short sale package is thorough and accurate. Some of the components of the short sale package include the buyer’s offer and preapproval letter, your monthly balance sheet, the closing costs, your paycheck stubs and bills, and your most recent federal income tax returns. Your agent and the bank will let you know if there is anything else you need to submit.
The Benefits of a Short Sale
When the package is constructed properly, both the seller and the bank will benefit from the short sale. The buyer will also receive a good deal on your home. Short sales preserve the bulk of your credit report and help you avoid bankruptcy or foreclosure.
You may be walking away with a loss on your home, but that is much better than losing your investment completely. David Stanger recommends short sales for anyone who is having trouble making payments on their home.
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