Real Estate Short Sale is when the lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss.
This is when a borrower cannot pay the mortgage loan on their home, but the lender decides that selling the property at a moderate loss is better than going through a foreclosure process.
Both the borrower and lender agree to the real estate short sale process, because it allows them to avoid foreclosure. A foreclosure involves hefty fees and longer sales process for the bank and poorer credit report for the borrower.
A short sale is the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment, nonperforming loan on their books. Borrowers are able to mitigate damage to their credit report and free of the debt. For both parties, a short sale is faster and less expensive than a foreclosure.
Steps for Real Estate Short Sale
Home Valuation for a Real Estate Short Sale
Typically, banks will consider a real estate short sale when the homeowner has an upside-down mortgage loan, wherein the home is worth less than the debt. If there is sufficient home equity, your bank will not consider a short sale.
Real estate short sale presents an opportunity for underwater borrowers who owe more on their mortgage than their property is worth and are having trouble selling the home to avoid foreclosure.
Contact Bank for a Real Estate Short Sale
The borrower must get the bank to approve in writing for a short sale. The first step is call your bank.
Hardship Letter for Real Estate Sale
The bank will want your side of the story in writing. This is where the borrower provides written statements and financial documentation for the bank to determine qualification for real estate short sale. Along with the financial hardship letter, you must prepare detailed set of financial documents to support the claim for a short sale.
Lenders often do loss mitigation that evaluate potential short sale transactions. Most lenders have pre-determined criteria for short sale transactions. They may or may not be open to offers. You must make a compelling case that a real estate short sale is in both parties best interest.
Lenders will typically determine the amount of home equity or lack thereof, by determining the probable selling price from an appraisal, Automated Valuation Model (AVM) or Broker Price Opinion (BPO).
If lenders see the possibility of recouping more of their funds from real estate short sale, they will approve it. Since, the short sale process will be less costly, and a sale will be completed sooner than a foreclosure.
Lenders may accept short sale offers or requests even if a Notice of Default has not been issued or recorded.
Real Estate Short Sale Agreement
A short sale does not extinguish the remaining balance of the loan, unless settlement is clearly indicated on the acceptance of offer by the bank. You might want to hire a real estate agent or real estate attorney that specialized in real estate short sale to help you through the process and protect your interest.
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