Short Sale - do you qualify?
What does 'Short Sale' mean?
A short sale results when the NET amount generated by the sale of a property is not enough to pay off all of the indebtedness secured by it, and one or more of the lenders agree to release their lien in exchange for less than the full amount due to them. A mortgagor's bank or lending institution will agree to the short sale of the property if they believe the financial loss will be less than foreclosure proceedings might cost.
Another common definition for a short sale is: "When an owner owes more on a property than it is worth." While true, this definition is incomplete. If an owner owes anything more than about 90% of the sale price on the property, it will likely result in a short sale because of the closing cost involved in selling it.
In general, there are three main conditions a homeowner must meet for a lender to consider a short sale:
- Behind on payments
- Legitimate Hardship
- little or no equity
In order to determine if the homeowner meets these requirements, the lender will typically require the following paperwork, often referred to as a 'Short Sale Package':
- Authorization to Release Information
- Hardship Letter (i.e. job loss, divorce, medical reasons, or relocation that deplete a home owner's assets)
- Financial Worksheet
- Listing Agreement (with contingencies, except FHA)
- Tax Returns (last 2 years)
- Bank Statements (last 2 or 3 months for all accounts of all borrowers)
- Pay Stubs (last 2 or 3 months for all borrowers)
- Information for a Pre-foreclosure Sale Program
- Market Analysis supporting proposed pricing (VA & Conventional)
Once the lender has received and reviewed the Short Sale Package then they will be ready to consider offers and or order an Appraisal to determine what would be an acceptable offer to them.
Who may NOT qualify?
- Homeowners who realize their home is worth less than what they paid and they just don't want to make the payments anymore
- Homeowners who have significant assets and income
- Homeowners who have bought a second home
What should you do if you are behind in your payments?
If you are behind in your payments call your bank(s) and keep communications open. Ask to speak to someone in the Loss Mitigation Department. You may qualify for a loan modification or another program.
So should you do a Short Sale or not?
Short Sales do affect your credit for about two years. After two years you may be eligible to buy a home again. The impact of a Foreclosure is a lot longer (five to ten years)!
Please consult with your CPA or Attorney about potential tax consequences of a debt forgiveness in reference to a Short Sale.
Contact me to determine what your home may sell for and for referrals to legal and financial professionals.