Many people have heard the term short sale, but most are unfamiliar with its definition or process. Short selling has become more widely accepted in the real estate market in the past two years as a way to keep more distressed properties from entering into full foreclosure.
A short sale is when a buyer makes an offer to the loan holder for a lesser amount than what is owed. This is often done on homes that are in pre-foreclosure or are already bank owned. As an example, a homeowner owes 300k on the mortgage. A purchaser offers the bank 220k for the home as the final price. The lender than can accept or negotiate with the buyer.
To begin the process the holder of the mortgage must call the note holder and request a short sale package. This package of paperwork represents each step both buyer and seller must take to complete a short sale.
The mortgage company may request a hardship package from the owner. This package will include financial statements, tax receipts and affidavits from the current owners as to why they can no longer fulfill their obligations on the home. It is advised that this paperwork is returned immediately because processing on the lenders end can take several weeks.
The purchaser will need to provide the mortgage holder with proof that they can pay for the house immediately at the time of sale. This can be done with securing another mortgage or with cash. Either way, if the lender approves they must be paid in full.
A Brokers Price Opinion (BPO) must be completed on the home. This is where a certified realtor must come and evaluate the home for what it is worth on the current market. The lower the market value in comparison to the money owed, the more likely the lender will agree to the short sale.
Once the evaluation has been completed and all the paperwork submitted both buyer and seller must wait for approval from the lender. At times, the lender may counteroffer the buyer, but in the current market conditions this is rare.
When all negotiations are completed and paperwork signed, the house transfers over to the new buyer. Short sales can take anywhere from 1-4 months to complete. The time line will depend on how quickly paperwork and evaluations are completed and how fat the lender moves on the issue. Short sales should be an early consideration when a property is starting to become distressed. A short sale can prevent foreclosure and other legal proceedings.
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