What is a Short Sale
What is a Short Sale
This is a brief overview of the Short Sale and the Short Sale process.
A. Short Sale Definition
A short sale occurs when a owner of real estate has outstanding obligations against a property that is more then what the property can be sold for in today’s market.
B. Short Sale Function
A Short Sales is a way to avoid foreclosure. This strategy is designed to potentially allow a homeowner to reach an agreement with the lender(s) to eliminate loan debts.
Step 1
You need to negotiate with your lender(s). They will have to be contacted. While mortgage lenders can be sympathetic to your problems, Lenders are never anxious to allow a short sale. If you’re uncomfortable in this role, let your Realtor, lawyer or advisor negotiate with your lender.
Step 2
You must write a letter “authorizing” your mortgage lender to disclose your loan information to real estate agents, lawyers, title companies, or other interested parties. Your loan information is subject to privacy laws so your lender needs your written authorization to release this data. This letter should include the property address, your name, your loan number (or other identifying data), and, if appropriate, a list of the parties for whom you wish this information to be given.
Step 3
Discover the current market value of your home. It is best to contact a real estate broker. The broker will provide you with an estimate of market value.
Step 4
Project the cost of selling the home. Your broker will be able to provide this data to you. Include closing costs.
Step 5
Also include your current unpaid loan balance and payments due. Your task is to present to the lender the bottom line ‘Net’ from a projected sale.
Step 6
Do the math. Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number.
Step 7
You must write a ‘Hardship Letter’ detailing all the events that have occurred to cause you to arrive in this financial situation. Explain your economic problems honestly and directly ask your mortgage lender to accept a less than full balance payment. While the more dire your circumstances, the better the chance your request will be granted, you should resist the temptation to over dramatize your situation.
Step 8
Prepare a statement of your current income and other assets for your lender to evaluate. Include all your assets, bank accounts, stocks, savings, additional real estate and all other items of value. You will often be asked to submit the last 3 to 6 months’ bank statements.
This information should display that you have neither the income nor the assets to repay your mortgage loan in full. Your mortgage lender will examine these to learn if there are recent large cash withdrawals or high numbers of checks clearing your accounts. Lenders want some assurance that you haven’t been hiding or diverting funds that might go to them.
Step 9
Talk to your tax account before you put your house on the market for sale. The IRS consider the forgiven debt obligations as income to you.
Step 10
Prepare to sell your home. You have two options. You can list the home for sale before you receive lender approval or you can wait until you have received approval. Please discuss this issue with your real estate broker before making a final decision. Many lenders will not even consider approving a Short Sale without the property being listed for sale.
Step 11
Sell the home. When you accept an offer, your broker will take care of the details with your lender(S).
Summary
This report serves only as a guide to the short sale process. It is not intended to include all details. Therefore you are advised to seek further clarification and confirmation of the process from your lender(S), real estate broker, lawyer, accountant or financial advisor.
In closing… please feel free to contact me if you have additional questions. It would be my pleasure to meet with you to clarify any issues you may have outstanding regarding the Short Sale process.
Yours Sincerely;
Steve Olmos, Summit Realty Group
909-590-1537, steveolmos@steveolmos.com
