Monday, March 23, 2009

Short Selling Instead of Foreclosure

Short sales are becoming more common today as homeowners find themselves in a financial pinch. In fact, one of my current listings is a short sale. A short sale is when a house is sold for less than what is owed on it and the expenses to sell/close it. While not an ideal situation, a short sale is viewed as much better than a foreclosure sale. It's less expensive for the bank overall, and many times the bank will allow the seller to pay the difference through an unsecured note at little or no interest.

To get into a short sale situation, a seller must have lender approval. Sometimes a lender will NOT agree to a short sale up front, so the agent listing it posts a price that the seller hopes the bank will accept.

Once contractural terms have been agreed upon by both buyer and seller, the agent submits the contract, along with pages and pages of documents, to the lender (or lenders if there is more than one mortgage on the property). Those documents include:

1 - A hardship statement from the sellers

2 - Title work

3 - Preliminary (proposed) HUD-1 (settlement statement) prepared by the title company

4 - W-2s from the last two years

5 - Federal income tax returns from the last two years

6 - A promissory note signed by the seller to repay the difference (varies by lender)

7 - Notarized letter to the lender allowing the lender to talk with the listing agent about the sale

In all, there are about 35-50 pages of information that the lender must see and view prior to making a decision. Sometimes the decisions are very quick and other times they will take weeks and weeks.

If you are in dire financial straits, this may be the way to go (instead of foreclosure). DO NOT WAIT to take action. Doing nothing sometimes results in the lender taking legal action.

If you desire to purchase a home in short sale status, do not expect to "low ball" this property in your offer. Lenders will often just let it go into foreclosure if the short sale will be less beneficial to them. All offers are required to be presented to the seller, so if you do choose to low-ball the property, they still have to respond with either a "yes", "no" or a counter offer.

For help with a short sale, talk with a knowlegable real estate agent about this process and how you should proceed. If you'll give me a call, I will be happy to help you.

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