Short sale real estate references selling property for less than the balance owed on the mortgage loan. This type of transaction is occasionally offered to borrowers who have become delinquent on their home loan and can no longer afford mortgage payments. In order to avoid the expense associated with foreclosure, banks allow borrowers to sell their house at a reduced price.
Entering into short sale real estate contracts is a lengthy process. Oftentimes, borrowers enlist assistance from a real estate lawyer, realty agent, or short sale specialist. However, borrowers must obtain approval from their lender before listing their home as a short sale property.
Not all banks engage in short selling. Those that do require borrowers to prove they are financially insolvent and unable to fulfill their financial obligation. Short sales are generally reserved for borrowers who do not possess home equity and owe more than their home is worth.
In some instances, banks will grant short sale approval to borrowers who possess home equity and are current on loan payments. Borrowers facing financial challenges due to the death of a spouse, divorce or terminal illness might qualify for real estate short sale.
The first step involves contacting the bank’s loss mitigation department. Loss mitigators usually attempt to qualify borrowers for loan modifications to help them remain in their home. If short selling is an option, borrowers must submit financial and real estate documents to their assigned loss mitigator.
Although short sale protocol varies by lender, most require the same financial documents. Short sale packets consist of legal forms, financial records and a letter of hardship. These documents can be your ticket to financial freedom.
Take time to review the information, fill out every form, double-check everything twice, have a real estate attorney review the documents, and make certain to return the packet on time. Do not lie or exaggerate information. Providing false financial information in a real estate transaction is a federal offense which carries a penalty of jail time and expensive fines.
The short sale hardship letter could very well be the most important letter you will ever write. Hardship letters give borrowers the opportunity to explain circumstances that caused them to become delinquent on their home mortgage loan.
Letters of hardship should be written in chronological order, outlining events that caused financial problems. It is important to list any action taken to overcome financial challenges. If you discontinued cable TV and cut up credit cards, state these facts in the hardship letter.
Once short sale approval is obtained, borrowers are required to sell their property within a specified timeframe. Most lenders require borrowers to have a prequalified buyer in place before authorizing a short sale transaction. Others grant borrowers’ time to list their property through a realtor. If the property is not sold by the deadline, lenders commence with foreclosure action.
One lesser known option for selling foreclosure short sale real estate is to seek out private investors. Many real estate investors are familiar with short selling and can assist throughout the process.
Before signing short sale contracts, be certain to inquire which type of short sale agreement is offered. Some mortgage lenders hold borrowers responsible for the deficiency amount of the sale price and loan balance. If borrowers are unable to pay the amount in full, lenders obtain a court authorized judgment which remains on credit reports until restitution is paid in full.
Other banks accept the sale price as payment in full and do not hold borrowers responsible for the deficiency. This is referred to as Payment in Full without Pursuit of Deficiency Judgment. Obviously, this is the preferred short sale real estate option.
