A short sale can be a smart foreclosure defense option for homeowners who are facing foreclosure and are unable to continue affording their current monthly mortgage payments. Short sales or pre-foreclosure sales typically require the consent of mortgage lenders since the homes are sold for less than the remaining unpaid mortgage balance on the home. The sale proceeds are used to pay mortgage lenders any remaining unpaid balance on the mortgage.
A Short sale can be a great way to save homes from foreclosure, avoid bankruptcy and avoid the severely negative impacts on credit ratings associated with foreclosure.
Short Sale Requirements
Short sale requirements can vary based upon the homeowner’s mortgage lender. Short sales require explicit agreement between the lender and the homeowner, and some mortgage lenders may choose to not accept them at all.
Short sale requirements may include:
- The home must be underwater with the market value worth less than the remaining balance on the mortgage.
- The homeowner has been unable to sell their home at an adequate price to cover the remaining balance on the mortgage
- The homeowner has no other assets to sell in order to cover the remaining balance on the mortgage.
- The homeowner cannot qualify for a mortgage loan modification or refinance.
- The homeowner is behind on mortgage payments and they are in or near default status.
- The homeowner has experienced a strenuous financial situation likely due to job loss, medical problems and/or divorce.
Short Sale Advantages
Short sale advantages are important to consider prior to other foreclosure defense options including bankruptcy or deed in lieu of foreclosure.
Four short sale advantages include:
- Until the conclusion of the short sale, homeowners can stay in their current home.
- It can be possible to repair credit ratings sooner than with a bankruptcy or foreclosure.
- There can be less negative impact on credit ratings than with a bankruptcy or foreclosure.
- Mortgage debt may be greatly reduced or even eliminated.
Short Sale Considerations
Short sale considerations are important for homeowners to evaluate since there may be other foreclosure resolution options that could work for them more effectively.
Three short sale considerations include:
- As far as credit reporting goes, a short sale may appear on an individual’s credit rating as, “paid in full for less than agreed.” Other mortgage lenders and creditors may interpret this unfavorably.
- Mortgage lenders may choose to pursue a deficiency judgment in an attempt to recover some of the unpaid mortgage balance at the conclusion of the short sale.
- Homeowners may have to pay a certain amount of money in tax if a portion of their mortgage debt is forgiven by mortgage lenders.
5 Tips For Short Sale Success
Learning about the 5 tips for short sale success can be highly beneficial for distressed homeowners facing foreclosure. A short sale can be an immensely valuable alternative to foreclosure whereby a home in the foreclosure process may be sold for less than the remaining balance on the mortgage.
This can be a smart choice for mortgage lenders since they may avoid the high cost associated with going through with the foreclosure process. Homeowners may benefit by avoiding the negative effects of foreclosure. The process can be time consuming and confusing however so homeowners should consider learning as much as possible about the 5 tips for short sale success.
Tip 1 – Enlist the help of an experienced foreclosure defense attorney.
Many foreclosure defense attorneys are intimately familiar with the foreclosure process, negotiating with mortgage lenders and finding favorable alternatives to foreclosure. These attorneys may help by evaluating a homeowner’s situation and determining if a short sale is the right foreclosure defense option to pursue. Next, these attorneys can help coordinate with the bank/mortgage lender and help homeowners avoid potential tax consequences. It can be wise for distressed homeowners to find a foreclosure defense attorney in their area offering free consultations to discuss their situation and a potential short sale.
Tip 2 – Be aware of potential short sale consequences.
When a home sells at a short sale, the home may be sold for less than the remaining balance on the mortgage so mortgage lenders may take a financial loss on the mortgage loan. Because there is an unpaid debt on the loan, mortgage lenders may file a deficiency judgment lawsuit in order to recover the unpaid debt. There can be ways to avoid a deficiency judgment however by negotiating with mortgage lenders. Additionally, there may be programs under the Home Affordable Foreclosure Alternatives (HAFA) to help homeowners avoid a deficiency judgment.
Tip 3 – Determine the true value of the property.
With short sales, homeowners are generally trying to sell the home as fast as possible and mortgage lenders are trying to get the most amount of profit as possible. For this reason, some mortgage lenders may deny short sale requests believing homeowners did not perform their due diligence in the sale of the home. It can be a smart idea to get an independent real estate professional or independent appraiser to appraise the value of the home. This can help homeowners prove to their mortgage lenders they listed the property at an appropriate price.
Tip 4 – Sell the home for the best price possible.
After getting the home appraised by a real estate professional or independent appraiser, it is usually the time to list the home for sale. A good starting price may be slightly above the appraised value. This demonstrates to the mortgage lender that the homeowner is trying to achieve the best selling price possible. Consider lowering the selling price at pre-determined intervals until the home sells.
Tip 5 – Prepare and review your short sale package prior to submission to mortgage lenders.
Homeowners are typically required to apply for short sale approval by submitting a short sale package to their mortgage lenders. There are often many required documents mortgage lenders will want to see in the short sale package, so it is often a smart idea to consult with the mortgage lender first about the required documents they will want to see. Commonly required documents in the short sale package may include:
- Two years of W2 statements
- 3 Monthly bank statements
- Current monthly budget
- All mortgages with account numbers
- 1 Month of pay stubs
- A hardship letter