Avoid Foreclosure

Avoid Foreclosure

Short Sales

Why a Short Sale might make sense for you...

You're struggling to make your mortgage payments. Your home is worth less than you owe and your finances are so shaky your lender won't modify your loan.

Before you resign yourself to foreclosure, see whether a short sale can get you out of trouble.

With a short sale, you accept an offer on your home that's less than what you owe on your mortgage and your lender forgives the remaining debt -- the difference between your mortgage balance and the net proceeds from the sale.

You leave with no outstanding debt and less damage to your credit history than a foreclosure. You can qualify for an FHA-backed loan two years after a short sale, compared with five years for foreclosure and seven years for bankruptcy.

A lender or mortgage servicing company will only approve a short sale if it will lose less money than it would cost to go through with a foreclosure. Our Sellstate Certified Short Sale Agents will show your lender the exact dollar loss if they take your short sale or foreclose on you.

You may have heard horror stories about lenders taking forever to approve short sales, or deals getting squelched over a few dollars by a second or third lien holder (such as a home equity loan lender).

But banks and mortgage servicing companies are approving short sales more often, and more quickly, than in the past.

The two federally chartered companies that provide the money for most mortgages -- the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) -- are even offering cash incentives to lenders that approve short sales.

With the overwhelming demand for short sales, you have to do everything just right or your deal could get lost in the shuffle or be denied by the lender.

Here are the 7 steps to completing a short sale deal:

Step 1. Find out if your lender or mortgage service company will consider a short sale and what you'll need to provide.

Call the loss mitigation department and ask a supervisor whether a short sale is possible. Some investors that own large numbers of mortgages won't accept such a loss so, if the answer is "no," the process ends right there.

You can't do a short sale without the lender's approval.

If a short sale is possible, ask what documentation you'll need to seek approval. The typical "short sale documentation package" requires:

  • A hardship letter that explains why you can no longer repay your mortgage.

  • Financial documents, including two years of tax returns, two months of pay stubs, four months of bank statements.

  • Records on how your agent marketed your home, from reports on how many potential buyers viewed it to photos of unrepaired damage.

  • Sales documents, including your listing agreement, a signed purchase offer, preliminary title report, preliminary settlement statement and written approval from all junior lien holders.

Step 2. Hire a real estate agent who's experienced in short sales.

ONLY work with a Sellstate Certified Short Sale Agent. Give your Agent authorization to speak directly to your lender. You need a well-versed agent who knows how to work with a loss mitigation department and move your deal along.

Step 3. Find the right price.

You won't get any offers if the price is too high. But your lender may not accept a short sale if the price is too low.

According to Tim Harris, co-founder of Harris Real Estate University in Las Vegas, lenders usually go for a short sale that nets at least 82% (after expenses) of the home's fair market value.

Our Sellstate Certified Short Sale Agents are experienced in short sales and will make sure to check your house inside and out and give you comparable listings and other info to help price the house accurately and quickly.

Step 4. Put your home up for sale and start preparing your short sale documents.

Think of a short sale documentation package as a mirror image of a loan application. You want to make your finances to look as bad as possible without lying.

Lenders are most likely to consider short sales when a homeowner has serious financial problems, so the hardship letter is the cornerstone of your case.

Like a good country song, your hardship letter tells a heart-rending tale of how you got into this mess -- for example, you've plundered your savings to pay your spouse's medical bills and you can't afford your mortgage payment now that you're living on one small income.

Step 5. Cut a deal with lenders that have second mortgages on your home.

If you have a home equity loan or line of credit from a bank or mortgage company that's not your primary lender, it must lift its lien on the home even though it won't get a cent from your deal.

"Most second lien holders go along with short sales because they get nothing from a foreclosure," says Paul Hickman, president of California Land Title of Marin.

That means they've accepted your loan as a total loss, no matter what.

"But some stop deals cold because of $10,000 owed to them," Hickman says.

If you run into a recalcitrant second mortgage holder, suggest a "short pay," which means you agree to repay some of what you owe as an unsecured personal loan.

Another option is to ask whether the second mortgage holder will accept a few thousand dollars from the primary lender in exchange for lifting the lien. (An agreement you'll have to take back to the primary lender for approval, of course.)

Step 6. Pick a good buyer.

If you've priced the home right, you may get several bids.

If that's the case, you want to pick the best possible buyer. That means someone with a substantial down payment, preapproved mortgage and few contingencies (such as having to sell their current home before buying yours).

The stronger the buyer, the more likely you are to win approval from your lender.

Step 7. Submit the deal for approval.

Loss mitigation departments are overwhelmed by foreclosure proceedings, loan modification requests and, of course, proposed short sales.

It's critical that you submit all of the documents your lender requires and follow its guidelines to the letter. Our Short Sale Certified Agents will walk you through the entire process and gather all the upfront paperwork needed to start the short sale.

If you don't provide all the upfront paperwork, your deal can be delayed, sometimes for months. And don't expect the lender to tell you that something is missing. You have to follow up to make sure you've provided everything the lender needs but of course our Short Sale Concierge unit will follow up on everything.

If all goes well, your lender will approve your short sale in three to six weeks and your deal will close in about two months!

Time is of the essence with a short sale. Do not wait until you have received a foreclosure notice. Start now. We are just a phone call or email away.

951-317-4191 Direct line to Broker/Owner - Shelly




Contact Information

Photo of Team Home Sales Real Estate
Team Home Sales
BRE# 01768953
Murrieta CA 92562

CA DRE# 01768953