If you're facing foreclosure and can no longer afford your home, you may qualify for a short sale—even if you don’t think you can (or haven’t been able to) sell your home.
Frequently Asked Questions
Q: What is a Short Sale?
A. A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the balance remaining on your mortgage. If your mortgage servicer agrees to a short sale, you can sell your home and pay off a portion of your mortgage balance with the proceeds. Depending on your situation you may be required to make a financial contribution toward the balance, but once the short sale is complete, you’ll be relieved of your responsibility to pay any remaining balance—called a “deficiency waiver.”
Q: Short Sale vs. Foreclosure impacts?
Q: Am I eligible for a Short Sale?
A. It may be an option for you if:
· You are ineligible to refinance
· You are facing a long-term hardship
· You are behind on your mortgage payments
· You owe more than your home is worth
· You have not been able to sell your home at a price that covers what you still owe on your mortgage
· You can no longer afford your home and are ready or need to leave
Q: Why would I want to do a Short Sale?
A. The benefits include:
· Eliminate or reduce your mortgage debt
· Avoid the negative impact of foreclosure
· Start repairing your credit sooner than if you went through a foreclosure
· May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (up to 7 years)
· In some cases, you may be eligible to receive relocation assistance to use toward your moving expenses and to make the transition to new housing easier
Q: What is the process of Short Sale?
A. If you qualify for this option, the short sale process is similar to a normal real estate sales transaction. You will work with a real estate agent to market and sell your home. Your mortgage company will also be working with your real estate agent every step of the way to:
· Set the sale price (based on current market value)
· Collect financial information and negotiate with other lien holders (i.e. your second mortgage company), if applicable
· Review acceptable offers
· Agree to the terms of the sale once a buyer is in place
· Work with the buyer’s real estate agent and mortgage lender to finalize the sale
In some cases, you may be eligible to receive relocation assistance (up to $3,000) to use toward your moving expenses and to make the transition to new housing easier.
Your mortgage servicer wants to help you avoid foreclosure and, in most cases, will be willing to work with you. The biggest mistake you can make is to wait any longer to take action. Contact your mortgage servicer today to determine if you're eligible for a short sale. If you need further assistance (before or after contacting your mortgage servicer), contact a Housing Counselor.
Q: What documents do I need for a Short sale?
A. Lenders aren't in the business of giving away free money to just anyone. You'll need proof that you're in dire financial straits and unable to pay what you owe on your home.
Aside from financial statements, your lender will also require several other documents when you apply for a short sale arrangement, including:
· Third-party authorization letter (gives your agent permission to work with your lender on the short sale)
· Client information form (your application)
· Tax returns from the past two years
· All bank statements from the last two months
· Most recent mortgage statement(s), (All mortgage loans on the property)
· Financial statement (including all assets and debts, such as retirement account statement, credit card debt, etc.)
· Hardship Letter
Q: How is my home’s current value determined during a Short Sale?
A. The only way to qualify for a short sale is if you currently owe more than your house is worth. So, how is the current value determined? That depends.
There are basically two options to get to your home’s current value, either with a broker price opinion (BPO), or an appraisal by a licensed appraiser.
Q: Can I hire any agent to handle my short sale?
A. It’s in your best interest to hire an agent well-versed in short sales because they are different than a traditional listing.
Lenders require a lot of financial reporting that needs to be gathered and coordinated. Your agent will also help coach the buyer on how the short sale process works and keep their expectations realistic.
There’s a high rate of fallout when buyers don’t understand what’s happening during a short sale. When your buyer backs out, you’ll need to start the short sale process all over again with another buyer.
Mortgage companies want you to use an agent to help you through a short sale.
Lenders are happy to pay the real estate fees because they know the short sale will be more successful if an experienced agent handles it. But, if you hire an agent who hasn’t gone through the process before, then you’re rolling the dice and hoping that it’s going to be successful.
Q: Why do homeowners sell their homes through a short sale?
A. Homeowners pursue a short sale when they can no longer pay the mortgage, need to move from the property and want to avoid a foreclosure. With a short sale, the impact on the homeowner's credit record might not be as bad as a foreclosure in some circumstances.
Q: Is the mortgage lender’s approval necessary in a short sale?
A. Yes, because in a short sale, the mortgage lender will be receiving less than amount the borrower owes on the mortgage. The lender needs to verify that the homeowner cannot continue to pay the mortgage and determine if a short sale is better than foreclosing on the property.
Q: Why does the short sale purchase process usually take longer that a regular purchase?
A. The seller's mortgage lender needs to thoroughly review a seller's short sale request. Gathering the required documentation and doing bottom-line reviews can take significant time to complete before a short sale is approved. Also difficult negotiations that take place between the parties involved, such as junior-lien holders and the seller, may delay the process.