What is a Short Sale?

By: Joan Hertz

What is a Short Sale?

 A short sale is when the lender/bank will agree to sell the property for less than the mortgage amount that the seller owes to the lender. There are 2 different points of view on a short sale: Perspectives from the seller and the buyer. (We could actually say 3 and include the lender’s perspective!)

Seller

Desperate sellers are looking more and more at short sales as a solution to avoid foreclosure. A short sale will affect the sellers’ credit scores but will have less of an impact than a foreclosure in regards to the negative impact on your future credit. Financial hardship by the seller has to be proven to the lender to begin a short sale. As a seller, if you are behind on your payment and your financial condition has drastically changed, the lender may be more willing to agree to a short sale. Please be aware that lenders can and will opt for foreclosure if they can recuperate money from the mortgage insurer (even if the seller can get an able and qualified buyer to purchase their home at reduced sales price). In the current real estate market, be aware that if you are “upside down” between the current value of your home and what is owed on the mortgage, but you are still making regular payments, the lender will have no incentive to approve a  short sale, and if for any reason you have to sell, the lender will expect you to come up with the difference. If you are considering a short sale, make sure you list the home with a Realtor  who is a Certified Short Sale Specialist. The Realtor will know all the requirements and be able to help you get to the finish line, the closing!!

Buyer

As a buyer, when you are looking at a short sale, the first thing to understand in this process is that the lender is in the driver seat. Flexibility, patience and time are what you need as a buyer to go through the process of getting approval of the sale from the lender. Understand that the contract will have provisions that protect the seller/lender. One provision will state seller to have lender and any lien holder approve the sale and purchase agreement. Some lenders may require that the seller can entertain other offers that are presented to him even after the home is under contract. Remember the lender wants to make sure that he recovers the maximum amount of the outstanding loan.

 How do you make sure all these issues are addressed up front? Engage a  Realtor  who is certified in short sales! The Realtor will make sure that certain necessary language is incorporated in the contract language, such as: Buyer has the first right of refusal or a clause that stipulates no other offers will be considered by the lender. A Certified Short Sale Realtor will make sure that, when listing to promote a short sale or submitting an offer to the lender, the following items are included in the package:

a) Lender contact  who approved the short sale or at least can confirm receipt of short sale package

 b) Contact information for the Attorney who is engaged to do a preliminary HUD to be submitted to lender

c) Results of the title search, which is performed to make sure that no other liens are on the property that will affect the HUD Statement and bottom line of the lender

d) Current Property taxes , HOA Dues and information about who is the Declarant of the HOA

e) Handwritten Hardship Letter from the  seller

f) Complete financial disclosure of the buyer

g) Purchase Contract

h) Preliminary HUD

i) Proof of income for the last 2 years

j) 2 years tax returns

k) Copies of last 2 bank statements

 l) 3rd party authorization form

SO, what is next in the process? Sit back and have patience after an offer is made on a short sale!

For more information about purchasing a short sale, visit: http://www.cbbankowned.com