A short sale pre-foreclosure can save your home from foreclosure. The short sale pre-foreclosure process has become a popular option for many homeowners and their lenders. A short sale occurs when you owe more on your mortgage than you can sell your property for in today’s market. Basically, you are upside down on your mortgage. Therefore, your lender must approve the sale.
How the Procedure Works
Before you can sell your home, you must contact your lender. Let them know you can no longer afford to make your mortgage payments, and briefly explain your financial hardship. Typical hardships that qualify you for a short sale include:
- Loss of job
- Reduced wages
- Illness or disability
- Divorce
- Death of family member/co-owner of property
It is also recommended that you speak with an attorney. You will need to put your property on the market for sale with a Realtor, or you can sell it by owner. The lender will require you to submit a short sale package including the following items:
- Hardship letter.
- Third party authorization authorizing your attorney or representative to negotiate with your lender.
- Copies of your financial records including W-2’s or 1099’s, last two year’s tax returns, recent bank statements, last two paycheck stubs.
- Copy of your real estate brokerage listing agreement, if applicable.
- Signed purchase and sale contract with a buyer.
Always work with a cash buyer on a short sale because lenders require quick closings once they approve the deal. Your lender’s negotiator will advise you once the short sale has been approved. If you are participating in the HAFA program, the lender must approve the transaction within 10 days from receipt of the contract. Otherwise, expect the process to take as long as 3-6 months or longer to get approval. Once all parties are notified of the approval, the transaction closes. You walk away owing nothing, as long as you negotiate in writing with your lender that the short sale proceeds satisfy your loan balance. Otherwise, your lender could get a deficiency judgment against you for the difference between the sale proceeds and your loan balance, if allowed by your state law.
Value of an Attorney
Short sales are complicated for most people to understand. It is recommended that you hire a foreclosure defense attorney to assist you with the negotiations with your lender. The attorney is experienced with the short sale process and has established relationships with the loss mitigation departments of most lenders. Therefore, you have a better chance of getting your transaction approved.
