Following the real estate market crash in the U.S around 2007, a lot of home owners have had to negotiate a short sale rather than allow their homes go into foreclosure. This is something that has now become very popular for the benefits it offers over foreclosure.
Let’s go back and start from the top.
What is a Short Sale?
In real estate, this is a situation where a person sells their property for less than the amount owed the mortgage company. This is usually as a result of the fallen value of said property among other things. For example, if a person bought a house at about $500,000 and as a result of certain factors, the value of the house drops to $400,000, the person will still be required to meet their regular mortgage payments which was calculated based on the original value.
This does not make any business sense so the homeowner can try to negotiate a short sale with the mortgage company especially if he can no longer meet said payments. The company (lender) however has to accept before the process can go on. You can read more about it here.
Who Qualifies for a Short Sale?
Not everyone qualifies for this type of sale. Since your lender will be losing money hence the word “short”, there are a few factors the lender will consider before approving the sale. All these factors will bother around the homeowner’s inability to pay back the mortgage.
Some of the four major criteria for qualifying for this type of sale are:
Drop In the Value of the Property
The lender will want to get the property valued to ensure it has indeed dropped in value. It will only approve this type of sale if there are signs that the value will continue to drop, resulting in further loss for them.
Homeowner Experiencing Economic Challenges
Another thing the mortgage company will consider is the financial status of the homeowner. If it is obvious that for some reasons, the homeowner has fallen on hard times and can indeed not meet his/her payments, then the sale might be approved so the lender can at least cut their losses early.
Mortgage in Default or Near Default Status
This is similar to the point above. The seller is concerned about payments being met. If for some reason it appears to it that the homeowner will no longer be able to meet these payments, the sale might be approved.
Homeowner Has no Other Assets
The lending bank may want to look at the homeowner’s financial statement and tax returns to ensure that the homeowner does not have any other assets. Remember that the lender is looking for ways to get back the full value of their investment. If it becomes clear to the lender that the homeowner has nothing else hidden elsewhere, then the sale may be approved.
It usually takes a combination of all four factors to have a short sale approved by the lender. If the lender does not approve the sale, then it won’t happen. You can read more here: https://www.thebalance.com/how-to-qualify-for-a-short-sale-1798181.
The process begins with a seller getting an offer from a buyer. Once an offer as has been received, the seller then contacts the lender asking permission to short sale. This will of course include your reason for wanting this type of sale. These are the reasons we looked at above.
The bank will then review the offer and the reasons offered. It will also send its own independent evaluation team to give it a proper value of the property which they will then consider against what your intended buyer is offering before reaching a decision.
If the bank finds your buyer’s offer and your reason for wanting the sale acceptable, then it will give the go ahead. Only then can the sale go through. The lender reserves the right to decline approval for any reason.
You should of necessity contact real estate experts in your city to help you out with this process. Local agents understand the market in their locality and can therefore help you at every stage of the process. They can help you get the buyer, negotiate with the bank and smoothen the entire process.
If you are in San Diego and you need Short Sale Help San Diego real estate agents should be the first people to talk to. The same applies to any other city.
There a number of benefits that this type of sale offers the lender, the seller and the buyer. We will however only focus on some of the benefits to the seller. These include:
Credit Score Protection – The impact of this type of sale on a homeowner’s credit score is not nearly as bad as what it will be if the home goes into foreclosure. This prevents a worst case scenario.
No Sales Fees and Commissions – The seller does not bear the burden of any fees as the lender takes care of all the fees and commissions.
Soft Landing – This offers the home owner a type of soft landing. Many real estate agents can arrange a quiet sale so the sale is not a public affair, saving the seller any embarrassment their financial situation becoming public knowledge may cause them.
Before considering this option, be sure you talk to a professional.