What exactly is a Short Sale?
A short sale transaction involves the sale of a property where a seller receives an offer from a buyer that is less than the amount of the mortgage loan on the property.
As an example if the seller owes $400,000 on the mortgage and the buyers offer is at current market value; lets say $250,000…. The sellers will be asking the bank to forgive them a debt of $150,000 and take that amount as a loss.
In order to complete the sale, the seller, using a qualified negotiator (real estate agent, broker or attorney) requests the lender to accept less than what is owed on the mortgage through a real estate purchase offer; asking for the remaining debt to be forgiven. Short sales are seen as a great alternative to foreclosure, like all real estate transactions, they are complicated.
Some banks will ask the seller to sign a promissory note for the balance. Some banks will try to seek deficiency judgments’ against the seller for the balance owed. Keep in mind the goal in the short sale process is to eliminate the debt. As a short sale negotiator I do not recommend a seller sign a promissory note. I also negotiate for, and get a written waiver’s of deficiency from the bank in the short sale process. If you have question or want a confidential consultation email Terry Hughes.
Are short sales a common practice?
Yes, for many years prior to the beginning of our 2007 and beyond years, housing foreclosure epidemic, short sales have been a part of real estate. Short Sales have been and are very beneficial to borrowers facing hardships.
Are all short sales approved?
The simple answer is no, not all short sales get approval. Each short sale situation is different, and each bank negotiator is different. Let me give you one example of a failed short sale. My clients had been out of work for 4 months when we put their home on the market. They were behind on two months of mortgage payments. We got a good offer and submitted all the required paperwork to the bank. After one month during negotiations the bank asks for updated documents. By this time both of my clients had started back to work again, the hardship vanished with their new employment. End of short sale.
What can a short sale do for me?
A short sale will allow the borrower to avoid foreclosure and salvage some of their credit rating status. In addition after a short sale the borrower typically can purchase a home again in the near future (usually within 2 years) if they maintain a good credit history on all other types of debt.
It’s important to remember that your short sale negotiator needs to be experienced licensed real estate agent, broker or real estate attorney. The process is complicated; having a skilled negotiator work for you will greatly increase the likelihood of approval.
What is a hardship?
A hardship is viewed as something that directly impacts a borrower’s ability to pay their mortgage. Some typical and bank acceptable hardships are,
- Adjustable Rate Mortgages, that have adjusted up
- Divorce
- Death of a spouse or co-borrower
- Illness
- Job Transfers
- Long vacancies of rental or investment property
- Medical bills not covered by insurance
- Pay cuts/salary reduction or other types of compensation loss
- Unemployment
- Underemployment
Yes there are more hardships that banks will accept; this list represents the most common types of hardships for short sales.
Among other things the banks will request a hardship letter from the borrower: A hardship letter is your brief reason to ask for a short sale. Your letter need not be complicated or long no more then one page, however; it needs to include why you are in a hardship and conclude with your desire to avoid both foreclosure and bankruptcy if possible. An experienced real estate agent or real estate attorney can help you draft a letter of hardship and should be willing to do so. If you want some help with your short sale letter or an example letter. Email Terry Hughes.
What do I include In My Hardship Letter?
The most powerful and effective hardship letters will briefly explain exactly what your financial situation is and why you are now unable to, or soon will be, unable to make your mortgage payments. Your description of the hardship needs to be honest and clear, be specific when giving a picture of your financial situation.
Your letter needs to include the date, your name, mailing address, property address, and loan number or numbers if more than one loan. You also need to sign your hardship letter. The bank will not accept an unsigned hardship letter.
Demonstrating Your Hardship
You will need to show documents which support your financial hardship. Most if not all banks/lenders will require the following.
- Bank statements from your checking and savings accounts.
- Copies of your latest mortgage statement or statements if more then one mortgage Death certificate; if hardship is related to death of a spouse or co-borrower
- Divorce decree, if applicable
- Evidence of unemployment, if hardship is related to a job loss
- Financial statement which sets forth the homeowner’s assets and liabilities Tax returns
- Property tax bills
- Paystubs
- The bank/lender may ask for additional documentation to substantiate your hardship claim.
Legal Help
If you have question regarding your legal responsibilities after a short sale and are concerned about the possible tax consequences of debt forgiveness, I advise you to talk with a real estate attorney and a licensed CPA. If you have questions or want an attorney or CPA referral, email Terry Hughes.
Hire Terry Hughes for all of your Preforeclosure or Short-sale Needs. We sell all price points of homes from $75,000 to $4,000,000. The Short-sale process is generally the same for Low-end to Luxury. Hire our team today, we are one of the top Short Sales experts in Vacaville and Solano County. PLEASE FILL OUT THE FORM BELOW WITH AS MUCH ACCURATE INFORMATION AS POSSIBLE. Time is of the essence, walking away is not the good option. Always try to Short-Sale.
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