Sort Sale: How Does it Work
For a start there is no simple answer because there is little standardization of the process. So, after reading a general discussion on process, you need to go to the lender and ask for their process, their time frames and their forms. It certainly doesnt help when people have urgent need to sell to avoid foreclosure, but that’s the hard truth of it.
Lets assume you know you cannot keep your house. There is simply no choice but to sell or foreclose. Foreclosure is one of those events that ruins credit and any opportunity to purchase again during better times. Now lets assume there is no doubt in your mind that you can get enough in a sale to cover your loan.
You should approach your lender with your case and hope they will agree that this you may have to foreclose and that the market price today will not cover the loan. You will get less for your house than you owe.
1.
The lender Agrees: to with your market analysis that the sale price would not cover the mortgage and that you have no way of paying the difference yourself. Then the lender would say that whatever the sale price is they would accept as the full payment of the loan. EG; If a home with a $600,000 loan would only get $450,000 at sale, the lender would agree to forgive the $150,000 difference and you can walk away.
2.
Choose a Real Estate Agent: find a real estate agent familiar with the short sale process and place the house on the market. OK, fair enough and now things are looking up. You wont get your credit destroyed and you wont owe the difference.
3.
Hurrah! You get an Offer; Of course its below market and below the loan amount but at least you are out from under and probably feeling relieved.
4. Purchase Agreement: A signed purchase agreement is the first step in the sales process. Generally, you cannot pull any money out of a short sale. The only hitch so far is that often refuse to pay a real estate commission, they often want to negotiate with the buyer themselves.
5.
Approach the Lender: with the offer. Its best to have most of this done before the listing process but most lenders will require the following form you as the owner.
a.
Hardship letter: You must really be destitute or close. The lender will not forgive any debt otherwise. This letter must show clear proof that you cannot continue to make house payments or pay the loan in full.
b.
Financial statements: a list of your assets and liabilities, tax returns, bank statements, proving you could not continue to pay the mortgage
c.
Release Letter: Giving the lender the authorization to release information so that the purchaser can negotiate directly with the lender.
d.
A copy of the listing agreement: Basically, they want to see proof that the house is really on the market and that there is a bona fide buyer in the wings.
e.
Attachments: All other debts related to the home, such as second mortgages, property taxes due or liens attached
6.
The Appraisal: The lender will do this.
Some Final Thoughts:
Be sure to have all your paper in order and ready for the lender. They are so backed up and under staffed that this can take up to three months even if everything is perfect.
We have been hearing that even if the bank agrees to the short sale they are sometimes backing away for reasons of their own. The lenders agreement to a short sale is not contractual. Even so, you dont want to lose your buyer waiting for the lender to come to the table.
* The amount forgiven on the short sale is taxable to the IRS, still this is better than foreclosure and the ruination of your credit.
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