A short sale occurs when a borrower sells a property for less than what they still owe on their mortgage. The lender forgives the remaining balance on the loan when the house is sold. Both the borrower and lender avoid going through the formal foreclosure process by using this type of sale, although it may have a negative effect on the borrower`s credit, in a similar way to that of a foreclosure.
Find an Agent
Lenders traditionally require a real estate agent in a short sale transaction. The borrower must first find an agent to start the process. Since short sales are more complicated than typical real estate deals, the seller should look for agents who have experience in short sales in the home market. Errors could cost the borrower the short sale, as the lender`s requirements and deadlines must be met for final sale approval.
The borrower must show that they can`t pay their mortgage to get short sale approval. Eligibility guidelines for a short sale vary by lender and loan type, but the borrower usually has to document their inability to pay the mortgage to get lender approval.
The agent and seller prepare a package to submit to the bank. The short sale package usually includes a formal authorization letter, which lets the agent talk to the lender and a financial statement from the seller. The seller has to provide pay-stubs, income tax return copies, bank statements and a letter explaining their financial hardship.
The agent will include a list of recent sales of similar properties in the area or a local market analysis. They are also responsible for submitting a preliminary closing statement that shows the itemized costs of the sale, such as title expenses.
Find a Buyer
The seller, along with their agent, is responsible for showing and marketing the home in a short sale. They must find a buyer within the time period the lender has approved, such as six months. If the seller doesn`t find a buyer and complete the deal before time runs out, the lender may go forward with a foreclosure.
Once a seller accepts an offer, the agent must prepare the paperwork necessary to confirm the terms of the deal between the buyer and seller and submit the offer for approval from the lender. Exact requirements differ by lender, but the agent usually has to provide the buyer and seller`s purchase agreement and proof of the buyer`s financing, such as a pre-approval letter from the buyer`s bank. The agent must submit the lender`s short sale package with a set of forms the lender requires to approve the sale, at the same time.
At this point, the ball is in the lender`s court. The lender has its own internal approval guidelines regarding short sales. The buyer and seller must wait for final approval. Depending on the lender, approval can take weeks or months. Once the lender issues the short sale approval letter, the deal can close.
A borrower who is thinking about a short sale should try to save their home first. Debt information services, such as nationaldebtrelief.com, may help a borrower who is struggling with a lot of unsecured debts, such as credit card bills.