A Short sale is the sale of a property by a financially insolvent homeowner who is facing foreclosure for less than the value of the outstanding loan. If a homeowner is interested in pursuing a short sale with their lender they will need to have the lender's consent and approval.
· The lender accepts the sale as payment in full for the loan.
· The property owner escapes foreclosure, but receives no funds from the sale
· There can be no equity in the property
· Seller cannot bring money to the closing.
• Lender does not report foreclosure to the credit bureaus.
The lender will require various documentation. The incentive for the lender is to remove the account from their books before the loan becomes a problem. It can cost a lender $25,000 to as much as $50,000 in order to send the property through the foreclosure process.
Technical requirements for a short sale: (May differ from lender to lender)
· Owner must demonstrate hardship/financial insolvency (i.e. loss of employment, illness, divorce, catastrophic illness, death of a spouse).
· Seller must prepare a hardship letter asking lender to accept short sale.
Documentation that may is required by the lender to determine if owner qualifies for a short sale.
· Listing agreement with Realtor showing the property is on the market for sale.
· Comparable market analysis which includes sales and listings
· Bank statements
· Pay stubs
· Tax returns
• Purchase/Sale Agreement
There are drawbacks to the short sale.
· A deficiency balance could be charged off which could result in negative credit bureau reporting.
• If the cancelled portion of debt exceeds a certain amount, the homeowner is required to report the forgiven amount as income on his or her tax return.
As always, any property owner should contact a Real Estate agent before entering into this type of transaction. If you would like more information on Short Sales, please contact me.