Foreclosure

Short Sale Center

Short Sale: A transaction in real estate in which the proceeds from selling the property are less that the balance of debts secured against the property. The property owner generally cannot afford to repay the outstanding balance, they therefor agree to release their lien against the property and accept less than what is currently owed. Any unpaid balance owed is known as the deficiency amount. A short sale does not guarantee a seller will not be liable for any deficiency amount. State laws vary and it is always recommended that you consult with an attorney and/or CPA with regard but not limited to any tax liabilities, deficiency liabilities, legal fees, etc.

LOAN MODIFICATION VS. SHORT SELL HOME

Below is a demonstration between two families.

Both families have bought their home at the height of the market for $400,000. Due to current market conditions these homes are now worth $220,000. Family A and Family B decided to take two different paths. Family A decides to proceed with a Loan Modification. This feels like an attractive idea as they can stay in their current home and hopefully save some money in the future. Family B decides to go ahead and short sale their home with the knowledge that they can buy a similar home 3 years from the close of their short sale.

Let’s take a look below at the dramatic difference 10 years after that important decision was made.

Family A
10 years later
Current Home Value:$286,000
Monthly Payments:$1,936
Principle Balance:$323,142
Total Home Equity:-$37,142
Family B
10 years later
Current Home Value:$286,000
Purchased similar
property at:
$239,000
Monthly Payments:$1,104
Principle Balance:$203,301
Total Home Equity:+$82,699

 

 

Ouch!

Both sounded like great options, but the difference illustrated above will have a huge impact on the quality of the above family’s lives. Short sale is the right option.

Short Sale Process

  • List property for sale
  • Receive and authorize a contract (needs to be authorized by seller and buyer)
  • Send contract to the bank
  • Send all of the paperwork above to the bank (they may ask for other items not listed and may send you additional forms for you and your agent to sign)
  • Be patient but persistent (typical time frame 30-45 days, some banks may take longer)
  • Stay as current as possible with your payment (some banks allow you up to nine months behind but they are harder to negotiate and keep off the auction block)

* Please note that this process will need to be done for each bank and some banks that are in second position will only start processing after they received written approval from the first

Pros & Cons

Pros

  • You will be eligible to purchase another house faster than if you entered foreclosure usually 24-36 months after short sale
  • You no longer need to pay large monthly mortgage payments for a home that is not worth it
  • The lender may (very likely) forgive the difference in debt between what you own and the final price
  • Credit score takes a hit, but it shows as a ‘Settled Account’ instead of ‘Foreclosure,’ which is generally preferred among lenders and creditors
  • You may have more control over the amount of the time you can stay at the home
  • Some banks may pay “cash for keys” upwards of $30,000 to cooperate with bank

Cons

  • Once the lender approves the short sale, the successful transaction depends on a good offer from good buyer
  • The lender does not have to say yes to a short sale
  • You have to move

Documents Needed for Short Sale

  • All owner and co-signor names and contact information along with all loan numbers
  • A third party authorization form (this allows your bank to discuss your short sale with your realtor)
  • Listing Agreement (should include comparable market analysis to justify your list price)
  • Last two years W-2′s
  • Last two months bank statement
  • Profit and loss worksheet
  • Financial breakdown of income and monthly expenses
  • Proof of Disability, Unemployment, Death, Medical Bills, or Job Transfer as a Hardship (“my payment’s too high” does not qualify as a hardship)
  • Hardship letter (this explains why you want a short sale for the reasons above and why the bank should allow you to short sale)

Bankruptcy

You must always consult with a Bankruptcy attorney should you have any questions pertaining to the subject. A Bankruptcy can be used alongside a short sale to negotiate Home equity lines of credit and other debts. A Bankruptcy must be discharged to complete a short sale.