A harsh reality most Americans are facing today is that they cannot make their monthly mortgage payments and are in danger of losing their homes to a foreclosure, or to creditors because they've already gone bankrupt. One possible solution, provided a number of conditions are fulfilled, is to do a short sale. If this term is unfamiliar to you, then read this article carefully. Find out what a short sale is, the advantages of doing a short sale and most importantly, what the procedural formalities are that you need to take care of in order to learn how to complete a short sale.
What is a short sale?
A short sale is a transaction wherein you receive an offer on your mortgaged home, which is less than the money owed on the mortgage. A short sale is the only option, other than foreclosure, to people who cannot repay their home loans, with property values at rock bottom in a depressed real estate market which shows no signs of recovery yet. And no amount of tax credits by the government will help!
Initiating a short sale requires prior approval of the lender, since the latter stands to lose money by accepting an amount which is less than the loan outstanding. For the loan company, it is a choice between recovering a smaller portion of the debt by approving the short sale, or writing off the loan as a loss or spending more money on foreclosing the loan. Also the proceeds of the foreclosure may net the company an amount lesser than the price offered for the short sale.
What are the Advantages of a Short Sale?
Firstly, your debt slate is wiped clean (on the home loan front at least!); secondly, your credit score will not be affected as much as a complete default would; and finally, you can become eligible for another loan guaranteed by the Federal Housing Administration in two years.
How Do I Complete a Short Sale?
Listed below are numbered steps on how to initiate and complete a short sale:
- Get an in-principle approval from the loan company to initiate a short sale.
- Check on the documentation required and arrange for the same (discussed in the next section).
- Get an estimate of the market value of the property and the best possible price you can get in the current depressed market.
- List your house for sale with a realtor who has prior experience in short sales and mention the price at which you're willing to sell.
- Once you receive an offer which meets your requirements, forward the information to the loan company for final approval and agreement on sale price.
What Documentation is Required for a Short Sale?
- Last two tax returns, 2-3 months of salary slips and 3-4 months of bank statements (actual requirements will differ from lender to lender)
- Reason(s) for proceeding with a short sale – financial burden, loss of wages or job, huge medical expenses or any other conditions which prevent you from servicing the monthly payments
- Details of offers received from potential buyers
- All property documents including a valid offer letter, your original sale listing, title deeds and written waivers from secondary and tertiary lenders, if there are any other liens on the property.
If everything is in order and your lender approves the sale at the accepted price, you could close the short sale and clear your debt within a period ranging from one month to six months.
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