Tuesday, 3 January 2017
by Staff, Spaulding Law
A short sale must be approved by the lender and may be an option if you are: behind on your mortgage payments, facing a long-term hardship, ineligible to refinance or modify your mortgage, owing more on your home than it’s worth, or unable to sell your home at a price that covers what you still owe on your mortgage. The lender will expect the following in order to make a determination on approval:
• A hardship letter. The seller must explain why he or she cannot continue making payments. The more desperate the circumstances, the more likely a lender will agree to a short sale.
• Proof of income and assets. If the seller has money in the bank, including retirement funds, it is unlikely that the lender will let the debt slide. This package of information must go back at least two years and include income tax and bank statements. It is important that these documents match the information on the original loan application or the deal will be unlikely to close.
• Comparative market analysis. This document shows that the price of the property has declined and that the property won't sell for the amount owed anytime soon. This packet of information should include a list of comparable properties on the market and a list of properties that have sold in the past six months or have been on the market in that time frame and are about to close. This information is less formal but often more informative than a property appraisal. The prices should support the seller's contention that the property is worth no more than the short-sale price.
• A list of liens. There may be more than one, so determine how many liens are on the property. The good news is that since late 2008, the IRS has been willing to release a federal tax lien. The IRS is not forgiving the back taxes that homeowners owe; it is just no longer requiring that the lien be paid off before the property can be sold.
Some of the benefits of a short sale include:
• Eliminating or reducing your mortgage debt.
• Start repairing your credit sooner than if you went through a foreclosure. Although a short sale and a foreclosure negatively affect a seller's credit score, in a short sale the damage can be minimized if the homeowner can persuade the lender to report the debt to credit bureaus as "paid in full."
• May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (up to 7 years).
The process for a short sale is similar to a normal real estate sales transaction. However, your mortgage company will also be involved in many of the steps and will likely take much longer than a standard transaction. The lender will help:
• set the sale price (based on current market value),
• collect financial information and negotiate with other lien holders (i.e., your second mortgage company) if applicable,
• review acceptable offers,
• agree to the terms of the sale once a buyer is in place, and
• work with the buyer’s real estate agent and mortgage lender to finalize the sale.
This information is made available by Spaulding Law for educational purposes only and not to provide legal advice. By using this website, you understand that there is no attorney-client relationship between you and Spaulding Law, unless you have entered into a separate representation agreement. This information should not be used as a substitute for competent legal advice from a licensed professional attorney.