The Short Sale Process

When housing prices were going up 15% or more in many places a few of years ago, there wasn't much attention given to short sales, and not much interest in the short sale process. However, with the subprime debacle, option arm meltdown, and increasing mortgage delinquencies, many people are wondering how to short sale their property or seeking general short sale information.

Generally, the short sale process is when the lender of a property allows the property to be sold for less than the amount owed on the mortgage loan.

The obvious benefit to the short sale process is that it provides short sale help and allows the borrower to avoid the severe credit report damage associated with a foreclosure. A foreclosure can stay on a borrowers credit report for up to 10 years and can take an emotional and financial toll, seeking short sale help can be very useful for many borrowers who owe more on their property than its fair market value. It may sound obvious, but the short sale process begins with proper short sale information.

The pitfalls of the short sale process should be considered as well. In order to get real short sale help, a distressed homeowner should start with accurate short sale information on how to short sale a property. There are many scoundrels out there offering inaccurate short sale information, or information about the short sale process that benefits them, instead of benefiting the homeowner. A short sale should generally not be completed unless the lender agrees to waive (in writing) any deficiency between the amount owed on the mortgage, and the amount the property sells for through the short sale process. Another issue that can surprise short sale sellers about the short sale process is the tax implications, this especially sneaks up on borrowers doing the "how to short sale" process on their own.

In many cases a borrower may be able to avoid taxation by getting the right short sale information and proving "insolvency" at the time of the short sale. If insolvency is not possible through the short sale process, and a seller is facing a tax liability resulting from the deficiency amount, it may be a more advantageous decision to let the lender foreclose.

THE SHORT SALE PROCESS- HOW TO SHORT SALE:

THE SHORT SALE PROCESS CAN VARY, BUT IT WILL GENERALLY WORK AS FOLLOWS:

1) The lender is contacted to discuss how to short sale, the possibility of a short sale help and to gather short sale information such as the general short sale process.

2) The property is listed for a short sale, either through a short sale real estate agent, or simply for sale by owner; it is critical to disclose the situation at the beginning of the short sale process.

3) A short sale offer is accepted, it is best if the short sale offer is as close to fair market value as possible. The lender can offer the most short sale help if the price is "realistic".

4) The seller submits to the lender a short sale information package of forms and documents so that the lender can evaluate the deal, this package usually includes completed lender forms, seller financials, bank statements, tax returns, paystubs, a hardship letter, and proof of property insurance. Additionally, the lender will typically require a listing agreement, copy of the short sale mls listing page, and an executed short sale purchase contract.

5) The lender will then evaluate the entire set of short sale documents provided, and send out a local real estate broker to give a broker price opinion (bpo) on the property and gather additional short sale information.

6) The lender will then evaluate the purchase agreement and determine if the purchase price is reasonable and the real estate commission is acceptable. Lenders sometimes will offer additional short sale help and explain how to short sale to the seller but a seller should not count on such short sale information.

Because of the amount of documentation required, the short sale process can be lengthy and frustrating. However, if done correctly, the short sale process can work well for all parties. The lender avoids the uncertainty of the lengthy foreclosure process, the seller avoids a true foreclosure and ideally avoids any risk of a deficiency, and the buyer hopefully got a good deal on the short sale property.

Considering the complexity of the short sale process, you must be educated and have good short sale information or experienced short sale help. If you are considering a short sale, make sure that you discuss your situation with a competent lawyer such as McFarlin & Geurts, LLP. The more educated you are on the short sale process, the easier the transaction will be, and the better result you can achieve. Finally, beware of do-it-yourself "how to short sale" kits that are being sold purporting to provide accurate information about the short sale process. These how to short sale kits are generally not worth the price as your lender can usually provide the same short sale information free of charge.