A short sale is a special kind of real estate sale where the money generated is used for paying off the remaining home mortgage. Often, due to various reasons like loss of job or illness, it becomes exceedingly difficult for the mortgagor to pay the home loan. If the mortgage lender agrees to give a discount on the loan balance, then a short sale is held and all the proceeds are taken up by the lender. The discount is given only under extraordinary circumstances that primarily depend upon the severity of the mortgagor’s financial condition and the state of the realty market. Furthermore, the lender also has the power to accept or reject the sale.
What are the advantages of a short sale?
The short sale is primarily carried out to avert foreclosure. From the homeowner’s point of view, it is a good way to escape the negative impact of foreclosure. The short sale remains on the credit report for only 7 years, and the property owner becomes eligible for another home loan in 1 to 3 years. The chief objective to such a sale is to make it easier for the owner to control his monetary deficiency quickly. With respect to the mortgage lender, short sale is a better way to recover the loan balance. Unlike foreclosure, such a sale is not associated with innumerable operating costs. Hence, the financial loss is lesser.
How is a short sale done?
- If your financial condition is unusually precarious, then short sale is definitely is the best option. However, before going for it, consult your attorney and frankly discuss the benefits and drawbacks of such a sale with him.
- The next thing that you need to do is to find a proficient real estate agent who can handle the sale dexterously.
- Thereafter, authorize the mortgage lender to discuss the problems associated with your home loan with the interested parties.
- Request your attorney or real estate agent to prepare a preliminary net statement for you. In this statement, overdue loan balance, unpaid monthly installments, late fees, sales price, operating costs related to the sale and real estate fees and commissions will be enlisted. After studying the statement carefully, it will become easier for you to ascertain whether you should actually proceed with the short sale or not.
- Once, you have decided to go ahead with the sale, write a hardship letter. Disclose the reasons why you would not be able to pay back the loan amount. Also attach the proof of income and possessions to help the lender to ascertain the gravity of your financial condition. You can also attach the bank statements, if in the recent past you have withdrawn large amounts of money frequently. Don’t forget to give a reasonable explanation for these unusual activities.
- Due to recession, the real estate prices are falling alarmingly. If you are opting for short sale solely for this reason, then get the comparative market analysis report prepared. With this report, you can easily convince the lender that holding the sale is the most feasible option.
- After you find an appropriate buyer, send the purchase agreement together with the listing agreement to the mortgage lender. He will scrutinize the documents and subsequently approve or disapprove the sale. He even has the power to re-negotiate the sale. If the sale is approved, your monetary crisis will immediately come to an end.