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Short Sales
You must have a good and provable reason why you are not able to keep your home any longer. Ask yourself these questions to see you truly have a hardship.
- Since you bought the house, have you lost your job ?
- Are you not able to work due to an illness or injury that has occurred recently?
- Do have large medical bills that you incurred after you purchased the home?
- Are you being relocated to another city or state because of your job?
- Has your interest rate gone up so much that you can no longer afford your payments?
- Do you have to sell your home because you are getting divorced?
If the lender thinks it can get more money from foreclosing on your home than from a short sale, the lender may not allow a short sale. Additionally, if anyone has co-signed on your loan, the lender may want to hold that person responsible for payment rather than doing a short sale.
What is included in the Short Sale Package
This is a list of items that you will most likely need - required items may vary depending upon the lender
Cover Letter
Authorization to Release Information
Seller's Hardship Letter (more about that below)
Seller's Financial information
2 years w2's
2 months pay stubs
2 months bank statements
Supporting Hardship Info - HOA liens, medical/disability statements etc.
Repair Estimate for the property
Comparable sales for the property
Contract
FHA and VA may have their own forms and special requirements as well
If you have mortgage insurance on your loan then the mortgage insurance company will also need to approve the short sale. If there is mortgage insurance, the mortgage insurance company will pay the lender the difference in the loss. Please be aware that many times the mortgage insurance company will ask the homeowner to sign a promissory note for some of the loss and pay some of that loss back to the mortgage insurance company.
The lender who you are sending your house payment to every month may own the note on your house or they may just be a servicer for the lender - which is most often the case. If they are only the servicer for the loan then the short sale can take even longer to process because there is yet one more entity who will have to approve the short sale. In this situation, the bank who owns the note, referred to as the investor, must approve the short sale as well.
Do You Have a First and A Second Mortgage?
If you have a first mortgage and a second mortgage with different lenders, getting your short sale approved will be more complicated. The second note holder will want some money to accept the short sale and usually the first note holder offers only a small amount to the second note holder. Approval by both lenders is a must in order to close and pass a clean title to a buyer. Sometimes the second note holder will accept the sale if the seller agrees to owe a promissory note to them and pay for some of the loss.
Did you commit fraud when you applied for the loan for this property?
Fraud is when you lie in the process of getting a loan. Did you lie about where you work, how much money you make or the amount of your assets? We will not list your property as a Short Sale in Riverside County if you committed fraud because you will be required to turn in a short sale package which may expose any fraud you committed which can serious legal ramifications for you.
Moving Forward with a Short Sale
If you think you may be a good candidate for a short sale, talk to your lender’s loss mitigation department. Once you determine that the bank is willing to consider a short sale, it is time to find a good Realtor who is experienced with short sales. More imporatantly, you should consult an attorney, and/or tax professional to determine what if any financial and/or tax ramifications may affect you. You may be thinking that there is no way you can afford to pay for these high-priced professional services at this time in your life, but you don’t want to find yourself in even bigger financial trouble.
You may be facing a tax bill from the IRS with a short sale or foreclosure. There may be significant tax consequences. It is possible that the forgiven debt could be considered as income and there are no guarantees that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. This is commonly known as a deficiency. A lawyer or your tax accountant can determine whether your loan qualifies for a deficiency judgment or claim.
The Hardship Letter and Short Sale Package
You will have to provide the lender a hardship letter telling your situation and what you have done so far to remedy your situation. This statement of facts needs to be fairly brief and to the point. It must describe how you got into this financial bind and makes a plea to the lender to accept less than full payment. You will be required to prove income and assets. Be truthful and honest about your financial situation and disclose your assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value.
You will have to provide copies of your bank statements. If they show unaccountable deposits, large cash withdrawals or an unusual number of checks, you should explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
Appraisal
Your lender will want to know what your home is worth in the market today. Your Realtor will provide information on recent comparable sales to the lender. The offer from a buyer that you accept along with a copy of your listing agreement is required by the lender. There will be other items that the lender requires but this gives you an idea about what is needed for the lender. The lender will have an a appraisal or what is called a BPO (broker's price opinion) done to more completely determine the value of the home.
Be Patient
Short sales almost always take longer than regular home sales and sometimes the houses end up going through foreclosure anyway. Sometimes buyers find another property while waiting for an answer from the bank. Also, you should know that a short sale will damage your credit but will be less damaging than foreclosure
Again, we can't stress enough - get professional advice from a lawyer or your tax advisor before you attempt to do a short sale.
Find out if you might qualify for one of several government programs to help homeowners avoid foreclosure. Click here.
