Short Sale Process
Typically, it is easier to attain a short sale if: the market value of your home has decreased AND you have a case of hardship such as: job loss, pay cut, family hardship such as divorce or health issues AND you have depleted (or never had) significant assets.
The lender does not want to own your home. They have significant costs to reclaim and resell your home….attorney fees, holding costs, taxes, utilities, expenses related to an increase in foreclosures within the banks portfolio, reselling fees (yes, they have to hire and pay a realtor too), etc. They would rather YOU sell your home.
You cannot do a short sale without a valid purchase agreement. So, you need to list your property (preferably with a realtor). You need a purchase agreement from a buyer. Your agent negotiates with the buyer. You sign the purchase agreement but it is contingent on “lender approval.”
The realtor does a net sheet (showing the bank what they will get) and negotiates with the bank for you (you must give this approval in writing to the realtor or they cannot do this). The realtor must “plead your case” and tell the bank why they should accept this agreement. The realtor must be factual and accurate on property condition and seller circumstances.
The bank accepts the deal and sends a letter detailing what they have agreed to. This acceptance has taken me 24 hours to 2-3 weeks total. The realtor must be savy and adept at this negotiation or it will take months. The realtor must call the contact in loss mitigation daily (or several times a day until there is acceptance).
The realtor then get the letter and gives this to the closer to process the closing. The letter should detail:
1. the amount the bank is accepting
2. how the bank with categorize this (ex. paid in full, satisfied, settled and satisfied, etc). These different options will affect your credit differently.
3. it is VERY IMPORTANT that the letter state the bank is accepting this as a final settlement of the loan. If that is not stated in some form in the letter the bank can seek the remainder of the deficiency from you later. In that case, they are only releasing the title but NOT YOUR OBLIGATION. Please, make sure you have this IN WRITING from the bank.
The basic requirements for a Short Sale are a Listing Agreement with a Realtor and a Sales Contract from a Buyer which are submitted to the Lender along with a Hardship Letter from the Seller explaining why they cannot continue to pay the mortgage and supporting documents such as tax returns, bank statements, information and photos of the home and the Comps, or comparative home prices supporting the offer. The way mortgages are sold, the mortgage holder can be anywhere in the USA or even overseas and certainly not aware of local real estate conditions.
If the package is complete, the Lender will order a BPO, or Broker’s Price Opinion, from an independent Realtor. Ths BPO is the key to the whole process. If it is too high, the Lender will not accept a low offer. Your Realtor can meet with the Agent doing the BPO and offer information supporting the offer, such as the average time on market of comparable homes, recent selling prices and point out any defects in the home. Most Lenders will accept an offer lower than the BPO, but usually not much more than 10% lower, though that will vary depending on the company.
The sales contract should specifically state that the offer is contingent on the Lender accepting the purchase price in full and forgiving the Seller the deficiency on the mortgage. There can be tax consequences but if the Seller is truly in a difficult financial situation they can be avoided – an accountant should certainly be involved in that question. This does all take time and Lenders are swamped, expect at least 2-3 months before a sale can be finalized, even if the Lender accepts the first offer. If they do not, the price can be negotiated.
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