Short Sale Resources For Sellers
A Short Sale is the following:
A sale of Real Estate in which the proceeds from the sale will fall short of the full amount of debt secured against the Real Estate.
The property owner cannot afford to repay all the liens and he needs the lien holders to agree to release their lien on the real estate and accept less than the amount he owes on the debt.
Why Short Sale?
A Short Sale is often used as an alternative to foreclosure, which mitigates additional fees and costs to the both the creditor and borrower. Although a Short Sale, when combined with missed mortgage payments results in a negative credit reporting against the Borrower, it is less damaging than a foreclosure reported on the Borrowers Credit Report.
Who can be a Creditor involved in a Real estate Short Sale?
Creditors holding liens against real estate can include Primary Mortgages, Junior lien-holders - such as second mortgages, Home Equity Lines of Credit HELOC lenders, Home Owners Association HOA (special assessment liens) and all who will need to approve indidivual applications for a short sale, should they be asked to take less than what is owed.
What do Creditors require for the Borrower to Short Sale their property?
In order to have a Short Sale approved by most of the major Creditors usually Creditors will carry out the following:
• Creditors require the borrower to prove they have an economic or financial hardship preventing them from being able to pay the deficiency.
• The Property must be sold for Market Value or within the range of Market Value.
• The parties to the sale must not be connected and in most cases all parties will be required to sign an Arms Length Affidavit including the Brokers and the Title agents.
• All Creditors having a Lien on the property must agree to the terms of the sale. This is usually demonstrated by all Lien Holders signing off on the HUD1 Settlement Statement immediately prior to the Short Sale of the property. Problems arise when junior lien holders with an interest in the property object to the Dollar amounts other lien holders are receiving. Thos junior lien holders can then prevent a short sale by refusing to agree to negotiate a reduction in their payoff to release their lien. This is seen a lot for example when there was mortgage insurance (PMI) on the loan, the insurer will likely also become a third party to these negotiations as the insurance policy may be asked to pay out a claim to offset the Creditor's loss. The wide array of parties, parameters and processes involved in a short sale can make it a complex and highly specialized form of transaction. Short sales can have a high risk of failure from inability to obtain agreement from all parties if not enough time is set aside to negotiate with all Lien Holders. In some cases a Short Sale may not be approved by all parties in time to prevent a scheduled foreclosure date by the senior Lien Holder.
Creditors and the Approval Process
Today a lot of creditors have special loss mitigation departments that evaluate borrowers' applications for short sale approval. The Creditors are using pre-determined criteria to approve borrowers and terms by which the sale will take place.
Part of the process includes the creditor(s) determining the current market value of the Real Estate. They do this by obtaining an independent evaluation of the property from an appraisal, a Broker Price Opinion, or a Broker Opinion of Value.
Depending on each Creditor's policy and the type of loan, creditors may accept applications from borrowers even if the borrower is not in default with their payments. Many Creditors have become adept to processing Short Sales applications. Regardless, Short Sales are a process and in many cases can take several months for the process to be complete and the Real Estate Sold. Short Sales often require multiple levels of approval.
A Short Sale and your Credit
A Short Sale resulting in a reduction of the amount a borrower owes towards a debt acts as a type of settlement or renegotiation of a borrower's debt. There are many ways a Creditor can report that reduction to the credit agencies. In a lot of cases the creditor reports the debt reduction to credit reporting agencies and this does adversely affect a person's credit report. Immediately after a short sale borrowers may find it difficult to obtain a new mortgage as lender's underwriting guidelines might reject lending to a borrower who has obtained a short sale in the past.
At the time of this writing; National and State laws, and industry standards for both real estate sales and lending is in an ongoing and rapid state of change. Borrowers should prior to pursuing a Short Sale obtain up to date information from multiple professionals, including an accountant, an attorney, and a real estate broker - all of who specialize in loss mitigation and are licensed to practice in the state where the real estate is located.