Short Sales Explained
A short sale is when a seller needs to sell property and the amount owed to the lender(s) is more than the current value of the property. In other words, a homeowner is ‘short’ on the amount owed to the lender. Short Sales have been around for years but were not on most people’s radar until the past few years when they have become more common.
Homeowners must qualify for short sale with a hardship based on one or more of the following reasons:
- Financial Hardship – why are you having trouble paying your mortgage(s)? job loss, illness, divorce, forced relocation, etc.
- Monthly Income Shortages – your monthly income is insufficient to pay your monthly bills.
- Insolvency – you do not have sufficient liquid assets to pay down your mortgage (most lenders do not include retirement accounts in this computation)
Most short sales are not approved by the lender(s) until there is a specific contract with a specific buyer in place. Short Sale Process:
- House is listed in FMLS/GAMLS as a ‘potential short sale’. Home is sold ‘as-is’.
- Prospects look at the home. Price may be reduced during the course of listing period if no offers have been made on home.
- Buyer Prospect makes an offer on the home. Offer is accepted by the seller. There is a binding agreement on the home with a ‘subject to approval by lender(s)’ on the short sale terms.
- The lender(s) is submitted a full package on the transaction – including a fully executed contract, buyer’s loan information, and homeowner/seller’s financial documents including a hardship letter.
- The lender(s) will approve or deny their approval on the short sale. If there is a denial – the lender(s) may or may not indicate what they would accept.
- Assuming approval(s) from the lender(s) – closing! Typically a closing is done within 30 days of the approval(s) from the lender(s)
The actually process once the lender(s) has received the package may take 30 to 90 days of waiting on the lender(s) decision. Each lender is different. Each deal is unique and different. It isn’t unusual for the lender(s) to ask questions or request additional information while reviewing the package.
One of the advantages to working with us on a short sale transaction is that we work hard to keep the process with the lender(s) moving along quickly. During the process we also provide consistent communication to all parties.
Understanding your options NOW could mean all the difference in the short sale process.