Short Sale, what’ what’s that? A simple guide to the Short Sale process.
So, what is a Short Sale? I here this questions all the time from clients! The short answer is it is a sale where you are not able to sale a property of a high enough price to fully pay all the loans and liens, and the creditors accept less than full payment for these debts. In other words, the payment is “short.�
The Short Sale process can be stressful for all involved, remember to be patient and work as a team.
Who qualifies for a Short Sale? In the conventional sale, the borrowers must qualify for the loan. In a Short Sale, the sellers must qualify for the bank to forgive the rest of the money owed on the loan. The sellers are still qualifying, just in the opposite direction. To get a Short Sale, you have to show a negative cash flow, minimal assets and serious financial problems.
Make sure that you are completely honest with your Realtor; not doing so can mean the difference between selling the home and the lender foreclosing.
What is the process?
Be prepared for your buyer to move on to another property if the Short Sale process is taking a while.
Selling a property that is a Short Sale is not that much different than a traditional, just a few extra steps. That being said, the process is not short when we speak of the time frame. Once your property is marketed and receives an acceptable offer, the contract and Short Sale package are submitted to the bank for their approval. The approval process and time frame is different with each lender, anywhere from 60 days to ?. The key is patience; the process is time consuming and sometimes complicated and can take longer than expected.
What is a Short Sale package? Many people consider this to be the most challenging part of the Short Sale, the package! So, what is the package? The package is a collection of paperwork and documentation that you put together with the help of your agent that you lender uses to determine if you qualify for a Short Sale. The package includes but is not limited to: Authorization to Release - This allows your agent to speak with the lender on your behalf. Current Mortgage Statement(s) – Most recent mortgage statement(s). Hardship Letter – This handwritten letter must state why you are unable to make payments. Your agent can give you an outline to follow.
Financial Statement –Must be completed and signed by homeowner(s). This document is available from your lender and a generic version from your agent. Tax Returns – Homeowner(s) tax returns (including all schedules) for the last two years. Bank Statements – Bank statements for all homeowner(s) savings and/or checking accounts. Most recent 3 months required. Paycheck Stubs – Last 3 paycheck stubs from homeowner(s) employer or 6 month profit and loss statement if self-employed.
It is a good idea to start a document file, place all new paycheck stub and monthly bank statements here when they come in, that way when documents need to be updated for the lender you will be ahead of the game.
What happens when my Short Sale is approved? From that point on you are back to the normal process of inspections and the buyer completing their financing. When you receive the approval letter from the lender they will have a closing by date listed, most of the time it is in the 30 day range. Some loans such as FHA and VA loans take longer to complete, your agent will need to stay in contact with your lender to keep them in the loop and request an extension if needed.
Different loans take differing amounts of time to close; your agent can help you choose the right offer for your situation.
What if I have more than one loan or liens against the property? This type of Short Sale is more difficult, but not impossible! Talk to your agent to make sure that they are comfortable with the situation, if not, ask them if they would recommend someone who is. Also, speak with friends and neighbors that have been through the process and ask of they would recommend their Short Sale team.
You and your Short Sale team are who is going to get this done; make sure you ask about your agent’s qualifications and training.
Disclosure: I am not an attorney or CPA, consult your attorney and tax professional to make the right decisions for your circumstances!
What will a Short Sale do to my credit? Disclosure time: I am not an attorney or CPA! There are many different trains of thought dealing with this issue, seek the advice and council of an attorney or CPA.
What about tax liability? Disclosure time again: I am not an attorney or CPA! There is a plethora of information from the Internal Revenue Service, just go to IRS.gov and search for short sales. Seek the advice of a qualified tax professional!
What does all of this mean? The Short Sale process is a tool for individuals and families that are underwater with their home and finances to sale their property. The process is challenging and much of the time frustrating to all involved. The most important thing to remember is to put together a great team, your Realtor, CPA, and attorney, without them it is almost impossible to “get-r-done�.
Jennifer Hunt, CSP, e-Pro, SFR is a Realtor with Avalar Real Estate Services and Short Sale Administrator for Metes and Bounds Title, Clermont, Florida. You can visit her at www.WestOrangeProperties.com