A short sale can be a very good solution for a homeowner that needs to sell and owe more on the home than the home is currently worth.
In the distant past, it was rare for a lender to accept a short sale. However, today due to overwhelming market changes, lenders have become more negotiable when these types of transactions. Changes in corporate policies and the Obama administration have improved the chances of short sale approval.
A homeowner is “short” when:
A borrower owes an amount on his property that when combined with customary closing costs is higher than the current market value.
A shortsale occurs when:
A negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full loan balance. A new buyer purchases the property, and the property is then ‘sold short’ of the mortgage amount.
This sounds easy enough, however this is a complex process that takes time, patience, excellent communication skills, organization, professionalism and experience.
Short Sale Qualifications
The two most important short sale qualifications is: 1) a homeowner has to be either in or headed for foreclosure and 2) a homeowner must have a demonstrable financial hardship. The homeowner will have to prove this hardship through a signed letter submitted to the mortgage company along with additional documentation.
What is an Acceptable Hardship?
A hardship can be defined as:
A material change in the financial situation of a homeowner that is or will affect his/her ability to pay the mortgage.
For homeowners to qualify for a short sale, they must fall into all of the following circumstances:
- Loss of employment
- Income reduction
- Business failure
- Damage to property
- Death of spouse or wage earner
- Death of non-wage earner
- Severe illness
- Military Service
- Payment increase or mortgage adjustment
- Insurance or tax increase
- Too much debt
- Combination of any of the above
A homeowner must not be able to pay down the mortgage. A short sale prospective homeowner has to be financially insolvent. For the purposes of a short sale, this means that the homeowner must owe more than he or she has, or does not have liquid cash or assets that could be used to pay down the mortgage.
If a homeowner has liquid cash or assets, they will be expected to use that cash and/or assets to use them to pay down their mortgages.
Why Would a Lender Accept a Short Sale?
One of the most common misconceptions that many homeowners and agents have is that their lender is lying in wait, ready to jump out and take their house. Nothing could be further from the truth. The reality is lenders and financial institutions are in the finance business, not the real estate business.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. Together, you can identify all possible options and, when possible, Dana Ash-McGinty, a Certified Distressed Property Expert® (CDPE®) can assist you in the quick execution of a short sale transaction.