As an experienced short sale agent in Nashville and the surrounding areas, I often get asked what makes someone eligible for a short sale. It is not enough to simply be underwater on the property. Just because the home is worth less than the outstanding mortgage balance does not qualify a home owner for a short sale. Below are a few important items lenders consider when reviewing a short sale.
1) Financial Hardship - the Seller must show (via a hardship letter) that they are encountering some form of a financial hardship. Examples of common financial hardships are job-loss, mandatory job relocation, illness of a family member, illness or death of a primary wage earner, overextended credit/debt. There are other hardships that banks will consider as well.
2) Negative Cash Flow or Projected Negative Cash Flow - If you are working with a qualified short sale agent, they will ask you to fill out an income statement showing your monthly income and your monthly expenses. You want to prove to the bank that your current expenses including your mortgage debt exceed your total household monthly income. If you are not currently cash flow negative, but you will be (i.e. recently laid off and receiving severance for a period of time, unemployment about to end, no longer qualify for a previously receivedgovernment assistance) you will need to provide documentation showing that you are projecting a future negative cash flow. In some instances banks will still approve short sales where the borrower does not show a projected negative cash flow. However, in my experience it increases the likelihood they will request a promissory note for the deficiency. (What is a promissory note, and are they common in short sales? Find out in my next blog post).
3) Fair Market Value is Lower than the Remaining Mortgage Balance - While being upside down is not enough by itself to qualify you for a short sale, it is one of the factors in determining eligibility for a short sale. As a part of the Short Sale Approval process, the bank will order a Broker Price Opinion (BPO) or in some cases a full property appraisal. The bank will rely on the results of the BPO/Appraisal to determine fair market value for the property. It is extremely important that the agent representing you in the short sale understands how to communicate with the agent or appraiser performing the value analysis for the bank. A bad BPO can slow down the approval process and in some cases kill the deal.
Don't underestimate the importance of a qualified real estate agent with short sale experience if you are considering selling your home via short sale. For more information or to set up a private consultation visit us online at www.Avoid4ClosureTN.com or e-mail me at aaron@ArmstrongRealEstateGroup.com.
Have a specific short sale questions or topic you would like covered? Post a response or send us a message and we will cover your questions in a future blog post.
Comments(2)