A lot of people are facing some very hard decisions right now. Being Foreclosed on is a process that can be embarrassing, humiliating, it destroys good credit records, and is often a very traumatic experience for good people swallowed up by bad loans.
There are options to avoid situations like this if you find you are behind on your mortgage, however, and one of those options is to consider doing a Short Sale.
A Short Sale is a process by which the homeowner agrees to sell their home prior to foreclosure at a price that is less than the current balance due on the loan. It allows the homeowner to avoid the pain and humiliation of foreclosure as well as the devastating damage to their credit score (point loss can easily be 200-250 points!).
There are possible drawbacks, however. The I.R.S. will see the debt forgiveness as income, and your lender may want to pursue a deficiency judgment, meaning that they may want that money back. I highly encourage anyone considering a short sale to consult with a lawyer and/or CPA. Each lender treats short sales a little differently, but this is an overview of what to expect.
- CALL YOUR LENDER!!! Lack of communication is the biggest single mistake you can make when you fall behind on payments. Speak with your lender immediately, and contact their "short sales" department. Make it clear that you want to talk to the supervisor or department manager; i.e. someone who can make a decision. This process can require making several calls before you find the right person, so be persistent.
- FIND A REALTOR THAT UNDERSTANDS SHORT SALES. You're going to need someone to help you get that home sold quickly, and a Realtor that understands the process and has experience with this unique type of transaction has a much better chance of being able to get the job done.
- LET YOUR LENDER KNOW WHO YOU'RE WORKING WITH. Lenders will typically not speak with agents unless the homeowner has given explicit, written permission to discuss the financial details of your loan. Your Realtor is working for you, but we need the bank to know that we have your permission to do so!
- HAVE A REALTOR SUBMIT A NET SHEET. The bank wants to know what sort of numbers they are being asked to consider, so have your Realtor submit a net sheet with all of the costs and expected return outlined in writing.
- SUBMIT AS MUCH FINANCIAL INFORMATION AS POSSIBLE. The lender will want to see bank statements, pay stubs, savings information, stock and bond information etc. Honesty is the best policy here, and if the bank finds you were trying to hold back information, they are going to be far less apt to work with you.
- HAVE YOUR REALTOR SUBMIT THEIR PAPERWORK. This includes the listing agreement, contract to purchase, Comparative Market Analysis (CMA), and so forth. It may also be a good idea to have them help you pen a Hardship Letter to submit that details why you are in this situation. If you can gain any sympathy with the bank, you might be able to work out the options you need with less difficulty.
Hopefully, this should help in getting your bank to approve the short sale. Lenders are more and more willing to negotiate right now, and believe it or not, they really don't want to have to foreclose on you, and if they can work out an arrangement they'd be much better off as well.
Bear in mind that any purchase offer you receive will need to be reviewed and approved by the bank, and that process can take as long as week from the time you submit the offer to them.
If you have any questions, or need to possibly list your home as a short sale, please give me a call and I can help guide you through the process and help you to avoid foreclosure!
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