Are you facing foreclosure?
Have you fallen behind on your mortgage payments due to unfortunate financial circumstances (job loss, medical issues, etc.)? Maybe you’ve received a Notice of Default letter from your mortgage lender starting the foreclosure process on your home. Scared and confused on what you should do next? You are not alone. Many homeowners today are faced with the same challenges and uncertainty.
Facing these challenges is very stressful but the worst thing you can do at this point is nothing. It is always advisable to consult with an experienced attorney and/or accountant regarding your particular situation as soon as possible. The point is that you do have some options and you owe it to yourself to evaluate all your alternatives. One of the alternatives for you to consider is to sell your home in what is known as a “short sale” transaction.
What is a Short Sale?
A short sale is where the net proceeds from the sale of your home won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it. Due to falling property values over the past few years, many homeowners have lost some or all of the equity they once had in their homes.
Mortgage lenders are in many cases willing to accept a short payoff on their loan if it’s in their best interest to do so. It can be very costly for a lender to foreclose on a home so they weigh that against cutting their losses in a short sale transaction.
It should be understood that a short sale will have a negative impact on your credit rating but in most cases not as damaging as a bankruptcy or foreclosure. A short sale is typically reported as a “settled debt” on your credit report vs. a foreclosure.
Short Sale Process
While each lender currently has their specific process, the typical steps to completing a short sale are as follows:
- List your home and get it on the market. Pricing the home to be very competitive relative to other comparable listings and recent sales is key to getting an offer to work with quickly.
- Accept offer(s) and combine with required financial information such as recent w-2s, pay stubs, tax returns, bank/savings account statements and financial information worksheet to put together a short sale package.
- Submit the short sale package to your lender(s) short sale or loss mitigation department.
- The short sale package will be evaluated for completeness and if deemed acceptable will be assigned to a short sale negotiator.
- The short sale negotiator will order a BPO (broker’s price opinion) which is a form of an informal appraisal completed by an independent real estate broker.
- The resulting BPO value will then be compared to the offer price on the sale agreement to see if it is acceptable to the lender or underlying investor. Typically, the offer price needs to be within 85-90% of the BPO value to get an approval.
- Once everything is in order the lender will issue a detailed approval letter authorizing the short sale.
- With the approval letter issued by the lender, the buyer will move forward with their normal home inspection to see if there are any repair issues that need to be negotiated. If there are any repair issues the lender will have to approve any seller credits for completing the repairs.
- Work with the buyer and their Realtor to complete the sale including any financing or title issues. You then meet with the escrow officer at the title company to sign all the standard sale documents. You’re done!
The timeframe for completing a short sale can vary dramatically depending on whom your lender is and if you have both a 1st and 2nd mortgage. You can expect the process to take a minimum of 3 months from the time you submit the short sale package to the lender(s). This is typically not a quick process and you need to be prepared to wait an extended period of time to get the short sale completed.
If you would like to discuss your situation further to see if a short sale transaction could be an viable option for you please click the Contact Us button below.