Short Sales for Sellers 101:
Steps you can take to avoid foreclosure
Times are tough in today's economy. Unemployment is skyrocketing and consumer debt is at an all time high. This has lead to homes being foreclosed upon at an accelerated rate. The threat of foreclosure is one of the scariest things a homeowner can face. However, there is another answer: A SHORT SALE.
A home can be sold as a short sale when the lender of the mortgage agrees to allow the seller to sell the home for less than what is owed on the mortgage to avoid costly foreclosure proceedings. This is a win-win for both seller and lender in most cases as a foreclosure will typically cost the lender more in legal and processing fees than than taking less than what is owed on the loan. The win for the seller is the fact that they should be eligible to finance another home in 24 months after a short sale versus at least 5 years after a foreclosure, given that they work on their credit score for those 2 years.
Things a Seller Should Remember Regarding Short Sales:
- Don't ignore the situation. If you are receiving notices from your lender stating that they are starting foreclosure proceedings or if you have already fallen behind on your payments and do not see yourself being able to get caught up, take control of the situation by starting the short sale process NOW while you still have time.
- Short sales are a LONG process. You must hire a competent real estate agent that is familiar with short sales, particuarly on the listing side. There is a lot of red tape to cut through in order to get a short sale approved and you need someone on your side that carries a sharp pair of scissors!
- A short sale MUST be approved by your lender. If your home has both a 1st mortgage and a 2nd mortgage, the secondary lender in theory should receive nothing if a short sale doesn't cover what the first lien holder is owed. However, the 2nd lien holder must release their claim in order for a short sale to proceed, which gives them some leverage. They do not have much incentive to agree to the short sale when they are receiving nothing so both lenders and your real estate agent must work together to make the process come to a completion.
- Once your home is listed, even if it is listed below market, competition is still high. You must keep your home in good showing order in order to attract a buyer and avoid a foreclosure. You are only allotted a certain amount of days to get an executed contract from a qualified buyer to stop the clock on foreclosure proceedings. Do what you can to help your agent attract the best buyer, or in some cases, multiple buyers
Paperwork You Will Need For Most Lenders:
Most lenders require certain paperwork from you before they will approve a short sale. Below is a list of documentation that is required by most lenders. One of our knowledgeable, experienced REALTORS can assist you with this:
- Authorization to release information to your real estate agent. You can't start the file without this.
- Detailed financial information. This includes 2-3 months of bank statements, federal income tax returns for the past two years, and paycheck stubs for the last 2-3 months. These must be provided by all borrowers on your lien. You must state you are unemployed if you are.
- Financial worksheet - Each bank may have their own you can download. This worksheet shows all assets and debts. This will establish whether you are financially going through hardship.
- Hardship Letter - You must state the hardship you are facing. Lenders would like to see that the hardship is not temporary. Make sure the letter is clear and legible and have your real estate agent proof it for you!
- Bankruptcy - Are you going to decide to file for bankruptcy? This can cause delay to the short sale. Make sure your short sale is done before any legal proceedings begins.
- Listing agreement with your real estate agent - Lender would like to know that you have made an attempt to sell the property.
- Offer - The lender will not start or take your short sale seriously until you have an offer on your property.
Contact BW Home Team today to be set up with an experienced short sale agent. Time is of the essence to avoid foreclosure proceedings!
List courtesy of Jimmy Nguyen and Short Sale Rockstars - Facebook