In this slow residential real estate market, short sales are becoming more abundant in all price brackets. For home owners or investors who are struggling or are falling behind on mortgage payments, the alternatives to foreclosure or bankruptcy is the “short sale.� Losing a home hurts in more ways than one. It destroys your credit and it is embarrassing to have your home taken away.

What is a Short Sale?

A short sale in real estate means that the lender is accepting less than the total balance due on the loan. Not all lenders will do this though, because their most obvious recourse is always foreclosure. Foreclosures are meant to at least clear the second mortgage, because there is only a slim chance that homes will sell at auctions for a reasonable price that covers the entire mortgage amount and legal fees. Home owners and investors avoid this option as much as possible because it remains on their credit record for 10 years.

Banks are looking out for their best interest and making sure they get their money, but in certain circumstances, lenders are willing to make accommodations to avoid taking the property back. In declining markets, lenders hate taking over homes, and with that said; before seeking out short sales, see if there are alternatives that the lender is willing to work with. For example, lenders can restructure the loan or forgo a few monthly payments to get you caught back up. Finding a knowledgeable and experienced Realtor is crucial at this point because they can help you keep your home, protect your credit and find you alternatives to foreclosure or bankruptcy.

Keep one thing in mind when considering short sales though. The I.R. S. will take debt forgiveness as income and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency and a real estate lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

Accuracy is very important and to avoid problems later on in the process, it is vital to maintain your proposal as specific as possible. Work with professionals who will help keep things from slipping through the cracks because you don’t want to show up at the settlement learning that you need to come up with out-of-pocket cash.

A few other things that you should come prepared with include the price you are asking the lender to approve, what percentage of commission the agent will be allowed to accept, closing costs, your financial situation, and a prepared HUD-1 settlement statement. All of these details will help expedite the approval process.

Final Tips for Success

There is no doubt that a short sale is complicated, but the key is to be organized before you even start. The process is very time consuming and there is no guarantee that the lender will grant you the short sale, but if you begin informed and prepared, this would help tremendously in expediting the process. There are many people in your situation now and lenders are inundated with requests, so the earlier you get started, the better the chances are of you getting an approval sooner. Everything takes time, but the more documentation you provide, the quicker and easier the decision is made.

Labels: foreclosures, lenders, mortgages, real estate, short sales