What is a Short Sale?
Monday, March 14th, 2011
While everyone knows that careful planning and saving are essential elements of home ownership, there can come a point where unanticipated situations can drastically change one’s ability to continue meeting financial obligations. At such times, the dreaded, all-too-familiar fear of “Foreclosure” can become a very real possibility. Among other negative consequences, a foreclosure can seriously damage one’s credit history and decrease the likelihood of qualifying for future loans and financial assistance.
However, for those who plan to give up their homes, there are alternatives to foreclosure. One such option is the Short Sale.
Essentially, a short sale is a sales transaction typically granted by a bank for two reasons: the seller has experienced unforeseen hardship, and/or the seller owes more on the mortgage than the home is worth. While unemployment or reduced income, medical emergencies, and divorce are among the most common sources of hardship, it is essential for homeowners to communicate the details of their specific circumstances to their lender in order to determine hardship.
1. Once the lender has agreed to work with the seller in pursuit of a Short Sale, the seller will be required to prepare a financial package including some combination of the following:
· Letter of authorization, which lets your agent speak to the bank.
· HUD-1 or preliminary net sheet
· Completed financial statement
· Seller’s hardship letter
· 2 years of tax returns
· 2 years of W-2s
· Recent payroll stubs
· Last 2 months of bank statements
· Comparative market analysis or list of recent comparable sales
2. Once the bank receives the financial package, the bank can take the following steps:
· Bank acknowledges receipt of the file. (10 days - 1 month.)
· A negotiator is assigned. (30 - 60 days.)
· A Broker Price Opinion (BPO) is ordered. This is essentially an appraisal of the property.
· A second negotiator may be assigned. (30 days.)
· The file is sent for review or to the Pooling Service Agreement (PSA). (2 wks - 30 days.)
The bank may then request that all parties sign an Arm’s-Length Affidavit. This is a document created by the bank to prevent sellers from committing mortgage fraud by transferring title to a relative and profiting from the short sale.
· The bank issues a short sale approval letter.
A few things to keep in mind:
· If the financial package is not complete, the short sale process will be delayed. In this event, the bank might even shred the package.
· Prompt submission of a complete financial package does not necessarily mean a prompt response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process.
Ultimately, a short sale is a beneficial option for homeowners to get out from under their mortgage without liability for the deficiency. In addition, homeowners also avoid damaging their credit with a foreclosure or a bankruptcy.
