If you purchased your home in a sellers market and are trying to sell your home in today's buyer's market, it is highly likely that you will be faced with asking your mortgage lender for some debt for some debt forgiveness in selling your home, otherwise known as a short sale. Putting your home for sale as a short sale is one thing; getting your mortgage lender's approval to sell your home as a short sale is altogether something different.
In most instances, your mortgage lender will require you to provide them with personal & financial documentation before they will even consider accepting a short sale of your home. The documentation typically asked for by most lenders will consist of the following:
*Recent pay stubs to document employment and income
*Your two most recent Federal income tax returns
*A list of assets and liabilities
*Two recent bank statements to review monthly cash flow
*A Comparative Market Analysis of your home
Why does the lender need this documentation? Your mortgage lender is looking at all of their options, some of which may not be in your best interests. The Comparative Market Analysis gives your mortgage lender a glimpse of what your home may sell for today, based on recent home sales in your area that compare closest to your home. An analysis of your income, assets, and liabilities by your mortgage lender may be done to determine whether or not you can afford to make monthly payments towards the difference of what is currently owed on your mortgage, and what the home will likely sales price of the home! For example, if you owe $300,000 on your note and mortgage, and your home sells for $200,000, the difference of $100,000 can be made into a promissory note from you to the mortgage lender. A $100,000 loan at 8% interest over 30 years is $733.80 per month! Several recent real estate sales failed to close due to this requirement by the mortgage lender.
Given the fact that mortgage lenders nationwide are faced with losing billons of dollars due to the current mortgage and real estate crisis, they will do everything possible to minimize their losses. The promissory note for the deficiency balance is just one example of what lenders will attempt to do to keep their losses to a minimum.
What if your mortgage lender doesn't approve the short sale? Not all short sale requests are approved by most mortgage lenders. In fact, it has been said less than 50% of all requests for short sales are actually approved, leaving the homeowner with even fewer options. Regardless of which option you choose, your mortgage lender already has updated information and documentation on you and your home, which may put you at a real disadvantage, especially if your home ends up in foreclosure.
The best advice I can offer to someone in this situation is to speak to an attorney immediately, especially someone who specializes in real property foreclosure. I have spoken to several attorneys whose recommendation has been to simply allow the home to go through the foreclosure process. Once the home is sold, there still remains the very likely possibility that there may be a deficiency balance owed by the homeowner to the mortgage lender. A bankruptcy attorney can provide you with very helpful advice in dealing with any deficiency balances that may be owed to the mortgage lender.
Losing your home in a foreclosure does not mean you can never own a home again. In fact, you may be able to get another mortgage in as little as two years, provided that you take several steps towards re-establishing your credit shortly after the foreclosure occurs. A competent financial professional can tell you how.
It is inevitable that hundreds of thousands of homeowners nationwide will lose their homes through foreclosure over the next 2 years, especially those homeowners whose mortgages had interest rate adjustments and simply could not refinance their mortgage due to declining property values. Asking your mortgage lender to approve a short sale of your home may end up creating more headaches for you than necessary.
Make sure you seek competent financial and legal consultation before you consider selling your home by short sale.
Mike Sikorski, MBA, GRI
Licensed Real Estate Broker
Licensed Mortgage Broker
Loss Mitigation Specialist
FLORIDA REALTY NETWORK LLC
22079 Kimble Avenue
Port Charlotte, Florida 33952
Phone (941) 206-6000
Email: Mike@FloridaRealty.net
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