Short Sale Basics

In these tough economic times, many people consider getting involved in a short sale of real property. However, most do not understand what it takes to close short on a piece of property. The term “short sale” for real estate means that the sale proceeds are less than the balance of the mortgage or mortgages for that real estate.

It takes a lot of time and effort to accomplish a successful short sale. Cooperation and hard work is needed. The seller and lender are both in tough positions. The seller can no longer afford their home and can not pay the mortgage. The lender has no desire to take the home or go through costly foreclosure proceedings.

The seller has to start the ball rolling by finding the right department and person within their lender to assist in this process. It takes many phone calls and letters to get a person with authority from the lender. Also, do not make the mistake of trying to go through the lenders mortgage work out department if you really just need to get out of the property and mortgage.

The seller has to provide the lender with many documents before lenders even consider the option of a short sale. Some of these documents include: (1) preliminary net sheet, (2) hardship letter, (3) proof of income and assets, (4) copies of bank statements, (5) comparative market analysis, and (6) letter of authorization.

The seller should contact a real estate agent, accountant and attorney. Many agents will reduce their commission amount on a listing that needs to sell short. Accountants can explain and go over the tax ramifications (which vary for each individual). Attorneys can help negotiate with the lender and buyer, determine if the loan qualifies for a deficiency judgment, work within foreclosure proceeding, and close the transaction.

Be aware that the lender is not in a hurry to agree to a short sale. The lender will take as much time as it wants and will periodically ask for more information. Lenders will only agree to a short sale if it makes financial sense.

The buyer has to have a lot of patience, be willing to cooperate with the lender and, most importantly, have the money to purchase the real property.