WHAT IS A SHORT SALE?

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. See Foreclosure VS Short Sale.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is "doing the other a favor;" a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment would entail. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority has pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO or BOV).

Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents an opportunity for "under-water" borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.

How does the Short Sale process work?

A Short Sale transaction is similar in many ways to a standard Real Estate Transaction when viewing the process on paper. In reality, the intervention with the bank or lender requires a few extra critical steps. State law also governs the activities of those who act on behalf of property owners who are facing Foreclosure, therefore it is essential to understand the process from start to finish prior to making your decision.

Be wary of an agent/company claiming to have resources and/or contacts with decision makers at banks to get your Short Sale completed. The simple truth is that the banks and lenders are inundated with tens of thousands of requests each day. They are overwhelmed and understaffed. This in itself is one of the major risks in pursuing Loan Modification. Success occurs through organization, persistence, and the balanced knowledge of a Realtor who specializes in this short sale field.

If you find yourself as a homeowner in the situation of struggling to make or have already stopped making your mortgage payments or property taxes for any reason…..you need to call me right away!! Timing is critical to minimize both the damage to your credit and your well being. Pick up the phone and dial my number (510) 812 9186….from here the process will go like this;

1. We will sit down together and have a look at your current situation.
2. If you have not already tried to modify we will go over the options on trying to do this first –the goal here is to try and keep you in your home.
3. If you have already tried to modify and are either not getting a response or have been denied (only 7% of homeowners have successfully qualified for a modification) then we must talk about the option of a short sale.
4. In order to short sale your property, I will need documentation required by your mortgage holder from you to get the short sale moving along.
5. I will submit an authorization to convey information signed by you in order for me to negotiate and speak to your lender on your behalf.
6. I will list the property for sale and find a buyer as soon as possible. I work with the title company to put together a solid and accurate HUD1.
7. When we have a strong buyer and purchase agreement in hand – all documentation will be submitted to the bank for approval of the short sale.
8. A negotiator will be assigned for me to communicate directly with and they will be in charge of file on your home.
9. The mortgage holder will send out an appraiser to obtain the current market value of your home. This is referred to as a BPO’s (Broker Price Opinions).
10. The file will be sent to the mortgage holder or investors for review – this review can take some time depending on who your mortgage holder is.
11. The approval letter is sent to me and we are now able to move forward to close the transaction.

The timeframe for all this depends on who your mortgage holder is and how many loans you have on your property. A short sale can take anywhere from 45 days to 6 months. I will be able to give you a better time frame when we sit down and review your situation before the property is put on the market. I have worked and successfully closed many short sales and know what lenders are the fastest and who are the slowest.

Typical Documentation Required For a Short Sale Package:

Letter of Authorization:

The bank or lender will require a letter from the Seller to permit the listing agent/broker to speak on their behalf and represent them in negotiations. It is also advisable to provide the Listing Agreement between Broker/Agent and Seller.

Hardship Letter:

The Seller is required to explain (in writing) why they are requesting a Short Sale. Reasonable hardship needs to be established to show that your ability to continue paying the monthly mortgage payment(s) has been impacted.

Purchase Agreement:

The bank or lender requires an executed contract between Buyer and Seller contingent upon acceptance of the Short Sale. Similar to more standard Seller transactions, the bank and lender will require documentation to support the Buyer is qualified with acceptable credit scoring (FICO), Lenders Approval, and Proof of Funds (Verification of Deposit) for down payment.

Estimated Settlement Statement (HUD-1)

The bank or lender requires a line item detail of all expenses incurred prior to and/or after the sale. The Escrow Company utilized in the transaction will provide this information.

Sellers Financial Information

Similar to when you originally qualified for your loan to purchase this home, the bank or lender will require submission of bank statements, investments, paycheck stubs, etc. It will be determined form their examination if you're circumstances are compelling enough to warrant a Short Sale.