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What Is A Real Estate Short Sale

By
Real Estate Broker/Owner with Richard Bleuze

For a variety of reasons, it is possible that the total debt on your home maybe more than what the home is worth. Most of the time, this isn't a problem because time is the solution. Depending on how much you owe, just wait it out and the value of your home goes up.  Problem solved. However, this could take years.

This solution does not work for everyone though, because some folks are stuck  in a situation where they absolutely have to sell their house.  This can happen for many reasons, some good and some not so good: relocation, financial hardship, loss of a job, divorce, death, illness, or anything at all. The result is that you may have to move, but you can't sell your house and make enough on the sale to pay the closing costs.

So what do you do?

One option is to do nothing and not make your mortgage payment.  I really do not recommend this option since it will impact your credit rating.  Another option is something called a "short sale." This is when you contact  the lender, let them know about your hardship and ask them to accept less money than you owe.  They will usually accept with conditions, of course. Of course, the lender doesn't want to do that, but they also don't want to pay all the costs of foreclosing on a home, repairing any defects, placing iton the market, and getting the best price they can for the property.  Lenders absolutely hate to foreclose, so they may be willing to consider a short sale.  Talk to them and try to find out the bottom line that they are willing to accept.

A short sale involves a lot of paperwork, time and effort and it is best if you have a real estate agent or someone knowledgeable to help guide you through the process and give moral support. A lot of stress is involved.

The first step is to contact the Loan Service Department of your lender. That number will be in the documentation you receive about making your payment. Use the phone and the mail. Keep copies for backup. The lender will ask you to submit a financial statement. They want to know that you really don't have the financial assets to repay the loan after you sell the home.

That's just the beginning, assuming they give a tentative agreement.  Your real estate agent still has to put the home on the market, find a buyer,  and get a bona fide offer. Once that has been accomplished, you submit all  contracts and paperwork to your lender for a decision. This takes a while  because there are several decision makers involved.  This usually takes 60 to 90 days.  However, I have seen it take as long as 180 days.  Of course, by that time the buyer said "bye".

Remember, that your lender isn't usually your lender. They just service the loan for your actual lender, called the investor. Your paperwork is submitted to the investor for a decision.

And if you have mortgage insurance on the loan, they are another decision maker in the process. Mortgage insurance covers lenders in the case of loan defaults. That way they can justify making high LTV (loan-to-value) loans.  If the investor and the insurer both agree, your short sale is approved, and you can sell you home.

A short sale is basically a "forgiveness of debt." That counts as income and you have to declare it to the IRS.

ABOUT THE AUTHOR:

Richard sells real estate in the San Gabriel Valley which is about 12 miles South of Los Angeles.  For more information, visit his website at http://www.westsangabrielvalleyrealestate.com