Understanding the basics of short sales

If you are looking for an alternative to bankruptcy or a foreclosure and feeling like the walls are closing in on your options, you may want to consider a short sale. A short sale is when you accept an offer to purchase that is less than what you owe on your property. Your mortgage company would then have to accept less than what they are owed in order for the house sale to go through. 

Documentation is key

In a short sale, your mortgage company will require documentation from you throughout the process before it approves the lower amount. A few common items most mortgage companies will require during this process are:

• A copy of the buyer's offer to purchase on the real estate property--This is the final offer that you and the real estate buyer have accepted.
• An appraisal--You can submit yours. The mortgage company will also have an appraisal done on your house.
• An estimate of the proceeds on the sale of your house--Normally, your real estate agent will submit this with the accepted offer to purchase on your property. Later, the mortgage company will want a copy of the closing statement your attorney will prepare for the HUD-I settlement statement.
• A statement of your finances--The mortgage company will want to know why you are no longer able to make your payments. They will also want to know why you cannot make up the difference between what you owe on your house to the mortgage company and what you are selling it for.

Communication makes a difference

You will want to make sure you have open communication with your lender, your real estate agent and your title officer/closing attorney. When you accept the buyer's offer to purchase, it should be contingent upon your mortgage company's acceptance of the short sale. This way, you have disclosed to the real estate buyers and their respective parties that it's not a done deal until the mortgage company says so.

You also need to choose a real estate agent who has experience or specializes in short sales. The process can be long and involved and it is best to work with someone who is used to playing the duck-duck-goose game with mortgage companies. 

You might provide a lot of paperwork upfront, only to be asked for additional supporting documentation. You might also provide this supporting documentation and have the offer rejected by the mortgage company. A real estate professional who specializes in short sales knows this and will be patient and diligent in working through the glitches, or continue to prospect for new real estate buyers and a higher deal.

The sting gets better when you start investigating your options

Emotions can become a factor in working through a short sale because it is not a golden decision; rather, it is the lesser of three evils. More than four years ago, I closed on the sale of my house. It was a short sale. I was separated from my husband and found myself with two young children and a house I could not support on my income alone. For me, a short sale was the only road I could have taken other than bankruptcy or foreclosure. 

Because I had a background in real estate, I was able to keep up with the requirements of the mortgage company and still remain sane. If I was given a "do-over," I would have chosen a real estate agent who specialized in the short sale process. It would have saved me a lot of aggravation, helped to preserve my already damaged ego and lessen the shock of my fallen dream.

Realize that even though full disclosure may seem embarrassing in these situations, the more knowledge your representation has, the more empowered they are to help you. A true professional is not there to be your judge and jury, they are there to guide you through this tough financial move and provide you with the best options available. 

This is just one moment in your life, and an alternative you might need to explore depending on your circumstances. Don't wait until it's too late; talk to a professional and find out more. If you have a short sale experience you would like to share, Connect2Agent would like to hear from you. Please drop us a line or comment below.

If you enjoyed this post, you may want to read:

• How to save your real estate deal when a buyer tries to back out
• What makes an appraiser qualified to value your house?
• Home Sellers: What should you do when your house has been on the market for six months or more?

Posted by Rebecca D. Levinson

Comments

[Diana Peter]

rebecca the info looks good, i only knew about short sales in stock market until now!!