What is a short sale?
Have you heard the term “underwater” as it relates to your home? This means that you owe more than the home is worth. This is where a short sale becomes a viable option.
A short sale is when a lender agrees to sell your property for less than what you owe on the mortgage. When foreclosure seems to be inevitable a lender will often agree to a short sale so they do not have to go through the expense of foreclosing and then maintaining the home until it can be sold again.
What does a Seller need to know?
All short sales need to be approved by the lender. Lenders will usually grant short sales for two reasons. The Seller is experiencing a hardship and there is not enough equity in the home to payoff the mortgage after paying the costs of a sale. Hardships can include unemployment, a medical emergency, divorce, reduced income, death or bankruptcy.
As a Seller you must provide a financial package to the lender so that they can either approve or reject the short sale. Although the package submitted varies from bank to bank, in general it will include:
- A preliminary closing statement
- A completed financial statement
- A hardship letter from the seller
- Two years of tax returns
- Two years of W-2s
- Two months of bank statements
- 30 days of payroll stubs
- A letter authorizing your agent to speak directly to the lender
- A comparative market analysis
Remember that even though you receive approval for the short sale, the lender can change its mind in the middle of the process.
What does a Buyer Need to Know?
You need to know what other properties have sold for in the neighborhood. You will submit an offer based on those comparable sales in order to prove to the lender that you are not too far off from market price. Once the Seller accepts the offer, your real estate agent will forward all required documents to the lender for approval.
The short sale process will be delayed if the package is incomplete so it is important to have an experienced realtor as well as an experienced attorney. They must stay in contact with the lender to keep them accountable and to try and receive short sale approval in a timely manner
The process can take up to 6 months, so it is important to know whether you, as the Buyer, have the patience for this form of sale. Once Seller receives short sale approval letter, the closing often must occur in a few weeks. Buyers should have their loan approved and be ready.
What happens after the closing?
Once the home is sold a lender can get a deficiency judgment following a short sale. In other words you are still liable for the Note. A deficiency judgment is in the amount of the remaining debt on the property that was not forgiven by the bank.
What a Seller must look for in the final short sale approval letter is language stating that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
You need to have the right people on your team in order to navigate through this complex process. It is imperative that you have a knowledgeable Monmouth County real estate attorney on your side.
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