If you are upside down on your mortgage because you owe your lender more than your home is worth, and you need to sell, a short sale might be the perfect solution for you. Your lender will have to approve the sale before you can close the transaction. You need to determine first if you qualify for one. There are four criteria that you must meet:
- Financial hardship
- Behind in your mortgage or about to default
- Your property values have declined and your home is worth less than you owe on your mortgage
- You cannot afford to keep your home
Short sales are considered pre-foreclosures. This means that you still own your home, and it has not gone through the formal foreclosure process, but if you continue to default on your mortgage, your lender will foreclosure, and sell it at a foreclosure sale. A pre-foreclosure short sale avoids the foreclosure process and the costs of foreclosure for your lender. Most lenders are agreeable to a short sale if you can substantiate your financial hardship and document the current value of your home as being less than what you owe on your mortgage.
The Process
The short sale process is a long one so you should start contacting your lender as soon as possible before they file a foreclosure proceeding against you. Even if your lender has already instituted foreclosure, you probably still have time to negotiate a short sale with them and save your home from going to foreclosure. After you contact the lender. you will need to find out who to send your short sale package to. It could be the loss mitigation department or the short sale department. You will also need to sign a listing agreement with a real estate agent, who will market your short sale property in the MLS to find a buyer for you. Your lender will require a copy of the listing agreement for their review as well as a hardship letter and a third party authorization letter for your attorney and/or your Realtor to be able to receive information about your loan. You will also need to give your lender copies of your financial information including the following:
- Paycheck stubs
- Bank statements
- Financial statement
- Last two year’s income tax returns
Short sales can take 3-6 months or longer to get approved. If your lender is willing to participate in the government’s HAFA short sale program, your lender is required to give you an approval or disapproval within 10 days after they receive a copy of the offer for their review. If they approve the sale, then you can advise the buyer, the Realtor and the closing agent that you are ready to close the transaction. Be sure to negotiate with your lender that the sale proceeds satisfy your mortgage debt; otherwise the lender could try and collect a deficiency judgment against you later for any remaining balance due on your loan.
Hiring an Attorney
Short sales are complex, and lenders can be difficult to work with. To help make sure your short sale is successful, you should hire a foreclosure defense attorney to negotiate with your lender. The attorney has established relationships with lenders and their loss mitigation departments and will be able to speed up the process for you. The attorney can also advise you of other foreclosure prevent options, and represent you in court.
