Q: WHAT IS A SHORT SALE?
A: A short sale is when the property is sold for less than the amount the owner owes to his bank. Short sales are generally pursued when an owner has to sell the home due to their personal situation.
If you must sell your home there are three basic scenarios: 1. You can bring money to the closing to cover the difference between the sales price and loan payoff; 2. You can let the home go into foreclosure, at which time the bank will sell the property at public auction. Your name will be published in the local newspaper, and after the sale the highest bidder must evict you out of your home if you do not move out; and 3. A short sale. Contact your bank, explain the circumstances and convince them to take less than the full amount owed on their loan.
Q: WILL MY BANK APPROVE MY SHORT SALE?
A: Not surprisingly, banks do not prefer to take less money than they are owed. However, they realize that foreclosing a mortgage and potentially taking back property is a lengthy, costly process. In a down real estate market it is in the bank’s best interest to minimize its loss.
With a short sale, a property can be sold and the bank can recoup most of the money owed to it. If they foreclose, they run the risk of having to purchase the property at the sale. If they do so, they may incur the expense of evicting the former owner, paying utility bills, real estate taxes and repairs to make the property saleable. Then, they must list the property with a real estate agent and wait until it is sold. Even if sold, the sales price may be tens of thousands of dollars less than the original mortgage amount.
Q: WHAT ARE THE CREDIT CONSEQUENCES OF A SHORT SALE?
A: The credit consequences between a short sale and a foreclosure vary slightly. Both will be listed on your account and will lessen your credit score affecting your ability to obtain future credit. A short sale will most likely not affect your credit score as badly as a foreclosure, so it is a better option than foreclosure.
Q: WHAT DOCUMENTS WILL I BE REQUIRED TO SUBMIT TO THE LENDER?
A: Tax returns, pay stubs, bank account statements and a realtor or appraiser’s written appraisal of the current value of the property. Many banks are not local and do not have a good understanding of what real estate values are in a particular market. You will also need a “hardship letter” to set forth your current financial situation, including an explanation as to why you must sell the property.
Q: HOW LONG DOES THE APPROVAL PROCESS TAKE?
A: Depending upon the bank it could take weeks or even months. It is critical that all the documentation be submitted simultaneously. If they are sent in at different times the process will be delayed indefinitely. Most lenders will not even begin to review the request until they have all the required documents.
Q: WHO PAYS MY CLOSING COSTS?
A: The bank pays for all the seller’s closing costs including the real estate agent’s commission, attorney’s fees and all the other typical selling costs. There is generally a limit as to how much the bank will allow for each of those fees.
Q: WHAT IS THE ATTORNEY’S ROLE IN THE SHORT SALE PROCESS?
A: The attorney plays a vital role in the process. They are generally the one who organizes all the documents and communicates with the bank to ensure they have everything they need to review the request. They also prepare a preliminary closing statement for the bank to review, setting forth all the closing costs and fees.
Got a question about short sales or anything related to real estate law? Send them my way: AThayer@srt-law.com
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