What is a short sale, and how does it work?
A short sale occurs when a homeowner sells their home for less than they owe on their mortgage. This is an option that sellers sometimes choose when they can no longer pay their mortgage and may even be facing foreclosure. It can be a difficult and daunting choice for a homeowner to make. However, with an experienced agent familiar with the process, it can be the right option for the property.
The first step will be to contact your lender about a short sale process. There is a lot of paperwork that will be required by the lender prior to them approving a short sale. A lender will have some sort of short sale packet they will require the seller to fill out. It usually will include papers that will show the seller is having financial hardship and is unable to pay their mortgage, bank statements, pay stubs, copies of bills and expenses, and more.
Once the seller receives the short sale packet it is a good idea to select an agent that is experienced with the short sale process. The agent will be able to guide the seller through completing the short sale packet and will also later work with lender to try and get the short sale approved. Additionally, the agent will also determine what the current market value of the home is, get the property listed in the MLS, and get the home under contract.
After the home goes under contract, there will be more paperwork that will need to be submitted to the lender. There will be a great deal of communication between the seller’s agent, the lender, and the buyer’s agent. This part of the process can take several months. It is long and drawn out with numerous requests from the lender for additional information. This is why having an experienced agent to handle the sale is so important. Ideally at the end of negotiations the lender will approve the short sale and accept the sale price for the property. If the lender approves the short sale, the deal moves forward to closing. The funds from the sale of the home go to the lender and the mortgage debt is paid.
There are some ramifications of a short sale to consider. The seller’s credit score could be negatively affected as they are not paying the full debt they agreed to when they took out the mortgage. Additionally, there may be other parties that need to be paid such as HOAs, contractors, home equity lines of credit, or taxes. However, that could be part of negotiations with the lender during the process. A seller can usually apply for a new mortgage in about four years after a short sale versus waiting at least seven years after a foreclosure. Another benefit is that a seller can stay in their home throughout the short sale process versus having to leave in the case of a foreclosure.
Determining if a short sale is the correct route to go can be very challenging. Wondering if this might be the right route for you? Questions? Contact us today! And remember, with us, advice is always free. Reach us at [email protected]