If it appears that the only available option to you is to sell your property as a short sale, here are things you should know:
Short sale is a type of pre-foreclosure sale in which the lender allows the property securing a mortgage or deed of trust loan to be sold for less than the full amount due, and accepts the proceeds from the sale as payment in full.
Short Sale Approval
Most lenders will approve a short sale only as a last resort to foreclosure because of the following:
- The borrower is insolvent
- The proposed purchase price is more than the lender can sell the property after foreclosing on the loan
- The market value of the property is below the loan balance due to local and national economic conditions
- The property was refinanced at a higher value based on an inflated property appraisal report
- The property is in such a physical condition that it is not financially feasible for the lender to put it into a marketable condition.
Regardless of who benefits from a short sale, most lenders have a very strict hardship test that the financially distressed homeowner must meet to qualify for relief by way of a lender-approved short sale.
Hardship could be one or a combination of the following:
- Reduced income
- Divorce or separation
- Too much debt
- Death of spouse
- Mortgage payment increases (example: negative amortization)
- Business failure
- Job transfer
- Illness and large medical bills
- Damage to property
- Military service
- You are not responsible for selling expenses. The Lender pays the realtors to list and sell the property.
- You will NOT get any sales proceeds from the sale
- Set your ego aside about how much your property is worth after what you paid for it, improvements you made, etc.
- Get all the required documents as soon as possible so that your realtor can begin communicating with the lender and marketing your property
- Price the property aggressively to attract the largest pool of buyers so that you can get sell it quickly.
- Remember, that time is of the essence. You only have so much time to try to sell your property as a short sale. So you must maintain the property so that it is marketable
- You can accept an offer and ratify the contract and send this off to the lender; but if another offer comes in that looks better than what was accepted previously, the lender can override the your decision, and accept the offer that is financially better for the lender.
- Escrow is not necessarily opened until the lender accepts the offer ---- and that's when the timeline of the contract begins
- Always encourage and entertain back up offers. Oftentimes, buyers get tired of waiting for the short sale to be approved, and they back out of the agreement
Short sale is anything but a "short" process
- Selling a short sale property is a long tedious process
- Getting a Loan Negotiator assigned to the case will entail many phone calls and other means of communicating
- This is a more involved process than a regular sale
- List price must be very aggressive in order to attract the biggest pool of buyers
- The quicker you get an offer, the better you are protected from foreclosure
- Offers tend to be lower than list price. Don't take it personally
- When an offer is submitted, you can accept...but Lender makes the final decision
- Lender may take 45 days or longer to respond to an offer --- accept, reject or counteroffer
- Lender may override the Seller's choice
SAMPLE foreclosure timeline
Here's a look at a timeline from late payment to foreclosure. The timeline will differ depending on lender, location and situation. There is always the possibility of postponing foreclosure, such as when the property owner lists the property for sale as a short sale, receives and offer or offers and forwards the offer(s) subject to lender approval.
- DAY 1 The borrower misses the payment.
- DAY 16-30 A late charge is assessed. The mortgage servicer contacts borrower to find out why the payment is late. File is sent to the Collection Department.
- DAY 45-60 The servicer sends a "demand" or "breach" letter to the borrower who has 30 days to resolve the situation by paying the delinquent amount.
- DAY 90 Notice of Default. Foreclosure proceedings start with a Notice of Default (NOD). The document is recorded at the request of the lender by the trustee and is recorded in the county in which the property is located. In California, the borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current. This period is referred to as the Reinstatement Period.
- DAY 180 Notice of Trustee Sale. If the borrower does not reinstate their account within the 90 day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
- DAY 196 5 Business Days Before the Sale Date. Right to Reinstate expires.
- DAY 201 After 21 days of the recording of the Notice of Trustee Sale, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount.