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Some sellers who decide that their home won't sell
at the price they had imagined often start to wonder if they should
do a short sale. A short sale is an option to consider, but you
should consult your Realtor and lender first.
What is a Short Sale?
A short sale happens when the lender is shorted on a mortgage, meaning
the lender accepts less than the total amount that is due. If your
mortgage is $100,000, but your home is worth, say, $90,000, you are
$10,000 short, not including costs to close the sale such as real
estate commissions, recording fees or title, taxes and escrow charges.
Sometimes, to avoid going through the costs of foreclosure, a
lender will sanction a short sale by letting a buyer purchase the home
for less than the mortgage balance while the home is in
pre-foreclosure stage. A pre-foreclosure stage is one of the three
stages of foreclosures.
Here are sample steps of a short sale:
1) Seller signs a listing agreement with a real estate agent
subject to selling as a short sale with third-party approval.
2) The agent finds a buyer who makes an offer for less than the
amount of the mortgage.
3) Seller accepts the buyer's purchase offer.
4) Seller's lender accepts the buyer's purchase offer.
5) Transaction closes when the buyer delivers the funds, the lender
releases the lien and the seller delivers the deed.
In fairy-tale land, everybody lives happily ever after. Except the
seller. There are consequences.
Qualifications for a Short Sale
Before you begin, you should consider the following to determine
whether you may qualify for a short sale;
-
The Home's Market Value Has Dropped.
Hard comparable sales must substantiate that the home is worth
less than the unpaid balance due the lender. This unpaid balance may
include a prepayment penalty.
Click here to find comperables.
-
The Mortgage is in or Near Default Status.
It used to be that lenders would not consider a short sale if the
payments were current, but that is no longer the case. Realizing that
other factors contribute to a potential default, many lenders are
eager to head off future problems at the pass.
-
The Seller Has Fallen on Hard Times.
The seller must submit a letter of hardship that explains why the
seller can not pay the difference due upon sale, including why the
seller has or will stop making the monthly payments.
A few examples that do NOT constitute a hardship are:
1) Bad purchase decisions. Blowing your paycheck on a home
theater system with surround sound does not qualify as a hardship.
2) Unhappy with the neighbors. Even if every home on your block
has turned into pot growing houses, that will not qualify as a
hardship.
3) Buying another home. The lender will not care if you have
decided the home is no longer suitable for you or your family.
4) Pregnancy. Increasing the size of your family or starting a
family is not considered a hardship.
5) Moving into an apartment. If you decide to move out of your
home, that is a lifestyle decision and not a very good reason to
abandon your home.
Examples of hardship are:
Unemployment
Divorce
Medical emergency / sudden illness
Bankruptcy
Death
-
The Seller Has No Assets
The lender will probably want to see a copy of the seller's tax
returns and / or a financial statement. If the lender discovers
assets, the lender may not grant the short sale because the lender
will feel that the seller has the ability to pay the shorted
difference. Sellers with assets may still be granted a short sale but
could be required to pay back the shortfall.
For example, if the seller has cash in a savings account, owns other
real estate, stocks, bonds or even IRA accounts, the lender will most
likely determine that the seller has assets. However, the lender might
discount the amount the seller is required to pay back.
Many entities profit from short sales, but there is no
seller short
sale profit.
Short Sale Consequences
A short sale is dependent on a buyer making an offer to purchase. If
you do not receive an offer, you will not qualify for a short sale. So
even if you meet all the other criteria, it is possible that no one
will buy the short sale. It is also dependent on the lender
accepting the buyer's offer. If the lender rejects the offer, a
short sale will not take place.
From
Qualifying for Short Sales @ About.com
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