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Process for Short Selling a Home
Short sale is sometimes perfect way to set a home owner or mortgagee free from a mortgage and embarrassment of foreclosure of property. When a bank or lender provides a homeowner an option to sell their home to third party (usually the lender) at a price that is much lower than what they actually still owe on the their mortgage, it is known as short sales. However, a borrower should compare the impact of both, short selling and foreclosures to make the right decision.
Benefits
Nowadays, short sales have emerged as popular option among the borrowers to safeguard their credit scores. In fact, it proves beneficial for all - buyers, seller and borrowers. A short sale proves to be advantageous for seller as they can walk out free and clear of a foreclosure. On the other hand, bank or lender gets great opportunity to recover part of their investment without hiring attorneys and going to foreclosure. The buyer gets great opportunity of purchasing home at low price.
Process
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For short selling a home, borrower has to take permission from the lender. He needs to contact the lender and determine lender’s process for completing it. Usually, banks grant short sale, when the seller has a hardship, and owes more on the mortgage than the home is worth.
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The borrower has to send a letter of hardship to the lender. A letter of hardship includes financial difficulties which are making him unable to pay the debts. The reason for hardship may include unemployment, reduced income, divorce, medical emergency, job transfer out of town, bankruptcy and death.
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Along with letter of hardships, additional documents such as bank statements, investment accounts, pay stubs and other financial records are to be attached. The bank will ask for almost everything such as a HUD-1, a real estate purchase and sales agreement. Borrower should send everything which lender asks for ASAP.
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The bank or lender reviews the settlement package. Each bank has its own guidelines to review the financial settlement package and consider forgiving remaining loan balance, commissions and other such expenses associated with it.
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If the lender approves the short sale proposal, borrowers or seller can start looking for potential buyers for their property. Usually, the short sale process sets a tight deadline for selling it. Hence, it is better to work with a real estate agent to sale home quicker.
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The lender reviews the purchase agreement and determines if the real estate commission is acceptable. Generally a bank determines the amount of equity by determining the probable selling price from an appraisal, broker price opinion or broker opinion of value.
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When an agreement to sell is made with a prospective buyer, the lender will want a copy of the offer, along with a copy of listing agreement. The lender may re-negotiate commissions and refuse to pay for certain items such as home protection plans.
If everything goes well, the lender will approve borrower’s request for short sale. A borrower may ask for lender not to report adverse credit to credit agencies. However, lender is at no obligation to entertain such requests.
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