What is a "Short Sale" and is It Right for You?
This is a "short sale:" The net proceeds of the sale fall short of the mortgage balance but the lender is willing to accept those net proceeds as full payment of the loan.
Under certain conditions, usually hardship (but not always), some mortgage holders will accept less than the full amount owed as payment in full. Why? Because getting something is better than nothing and the lender's only option may be to bear the cost of foreclosing (attorney's fees, rekeying, repairs, marketing costs, etc.) Sometimes, if a homeowner is coming up short by only a few thousand dollars, it is a better option for both seller and lender to agree to a short sale.
Be prepared, however, that the short-sale process tends to be lengthy. While I have experienced a few banks who respond quickly and get a sale completed in 30 - 45 days, they are the exceptions. It is not uncommon for the short sale to take four to six months to get a decision -- approval or denial -- from the lender.
Also, be ready to complete and provide in-depth information about your financial situation in the form of a "short sale application package." Typically, those packages include a lettter of explanation as to why you are requesting a short sale, verification of your employment status (or lack therof), your pay stubs (or copies of unemployment checks), disability letters (if applicable), and more.
Two things you will need in the short-sale process are: 1) a good real estate or bankruptcy attorney and 2) a Realtor who is knowledgeable and experienced in short sales.
Most real estate agents are not well-versed in short sales and choosing an agent who is inexperienced in negotiating with loss-mitigation departments at banks may do you more harm than good. Some real estate agents are marketing short-sale properties at grossly undervalued prices as a way to entice buyers only to have the banks counter buyers' offers at prices above the listed price once the bank does its appraisal and discovers the property is worth $20,000 more than the price it is listed on the MLS. Understandably, the buyer who submitted a full-price offer (based on the MLS listed price) feels like they've been conned and they tend to walk away from the deal, leaving sellers to start the marketing process all over again.
A good Realtor will help you avoid the "Pin the Tail on the Donkey" trap with short sales; trying to find a target with a blindfold on. That is, banks who say "Bring us an offer and we'll consider it." Months after submitting an offer, however, they're still "considering it." All the while, the foreclosure process is proceeding and your short-sale marketing time is getting shorter.
An experienced short-sale Realtor will know how to get to the right people in the bank and how to talk with them to arrive at a compromise that mitigates everyone's losses and will get it in writing. A good Realtor will work together with you, your attorney and your lender to help you get out of a tough spot so you can get a fresh start.
Watch for more real estate articles coming up!