Lately I have had numerous people ask me if they should try to short saletheir home. These are people who are stuck in increasing adjustable rate mortages, interest only loans with balloon payments coming due that can't refinance or afford to pay the balloon payment, high interest rate loans with extremely high mortgage payments that they can no longer afford and people who want or need to sell, but feel that they won't be able to get what they owe on their homes due to declining values.
Short sales have saved many people from foreclosure thus saving lenders hundreds of thousands that they would have lost with the alternative ~ Foreclosure! That being said, do you need to short sale your home? Can you short sale your home? Would you even want to try to short sale your home? Lets see....
What is a short sale?
A short sale is when your lender(s) agrees to take less than what is owed on your home upon the sale of your home. The professional definition: A short sale is when a mortgage company accepts a discount on the note to avoid a possible foreclosure action. Instead of buying from a seller, the property is purchased directly from the lender for a discount. When a homeowner can't meet their financial obligations on the property lenders are sometimes willing to accept less than the full amount due, commonly referred to as a "Short Pay" or "Short Sale".
Here are some of the basics that you should know prior to making the decision to try to short sale your home:
- Most lenders will not typically agree to a short sale unless your loan is in default (you have missed one or more payments). So if you are not behind on your payments chances are that they will not consider your home for a short sale. This does vary from lender to lender so you will want to talk to your lender and/or an experienced REALTOR® (who can contact your lender) to find out your institution's practices.
- If you are so far behind on your payments that your lender has begun the foreclosure process, it is probably too late. However, some lenders have been known to hold off on the foreclosure and auctioning your property if you already have a buyer, a binding purchase and sale agreement and have already submitted all short sale documentation, but are simply waiting for an answer.
- You have to be able to prove hardship. A REALTOR® who knows short sale procedures can tell you what you need with regard to your hardship letter, budget and required documentation.
- Typically your lender will not tell you how much they will accept until you submit a binding purchase and sale agreement for the sale of your home combined with a short sale package and it is either accepted or rejected.
- It could take 6 months or more to get an answer from your lender after submitting a binding sales contract, your short sale package and all required documentation. If you are already behind on your loan, your home could go into foreclosure before a decision is made with regard to the short sale. Also, you could lose your buyer if it takes too long as buyers get anxious and can decide to terminate and move on to the next property.
- You could have adverse tax effects with short selling your home. You need to consult an accountant prior to listing your home for short sale.
- Your lender could try to make you pay the difference between what you owe and the amount they agree to accept.Get a good REALTOR® who knows how to negotiate short sales and knows the special stipulations to put in the contract to assure that this doesn't happen to you! Your lender may not accept the special stipulation, but at least you are not bound to the agreement, nor to pay back this amount.
Some other helpful information you should read:
Hardship Letter | Imperative for Negotiating a Short Sale
Short Sale Package | Standard Items Needed
All of this may sound quite difficult to you, but let me assure you that there are MANY cases where Homeowners are able to short sell their home and were able to walk away with their desired results based on their circumstances. Feel free to contact me with any questions you might have. I would love to give you all the facts based on your situation so you can make an informed decision!
RE/MAX Town & Country of Woodstock
Agent of the Year | 2007