What is a Short Sale?

We all know that the real estate market is dynamic and constantly changing, sometimes in ways that completely surprise us. Many home owners are facing some tough decisions, with foreclosure not an option for some there are other avenues that they can take to help remedy the situation that they are in. A decision that many have made is to pursue a short sale. Short Sales have been around for many years but are now only being heard about in large numbers because of the current state of our economy. With many people owing more than they can sell their home for, fluctuating arm interest rates, and even relocation this is a feasible option for them. Here are the facts on short sales and what they can do for you.

Short Sale: When a lender agrees to accept less then the full mortgage amount for the sale of your home. Not all lenders will agree to a short sale, sometimes it is a better financial decision on their part to foreclose on the home. A short sale is not a foreclosure, and does not affect your credit the same way, however, your credit does become negatively impaired. Please be aware that you can be taxed on the money that the lender discounts you. For example if the lender agrees to sell the home for $30,000 less then the amount of the mortgage, you could potentially be taxed on that amount as earned income.

You will need to find a Realtor that is willing to proceed with a Short Sale. Once you have you will need to submit two letters to your lender. One is a Hardship Letter and the other is a Letter of Authorization. Both of these will be sent to the lender where the case will be assigned to a specific person. This person will be your main contact during this time.

The Hardship Letter is a statement to your lender of how you got into this situation in the first place. Lenders are not all bad, tell them about medical bills, if you lost your job, the main provider passed away, etc. However they will not feel so bad for your situation if you got there through illegal activities or were dishonest with them about your finances. Do not go out and buy a diamond necklace the day after you were accepted for a short sale. They will see that you are not serious about working with them and that this is not a situation out of your control.

The Letter of Authorization basically tells the lender that it is ok to discuss your situation with your real estate agent. Be specific about who they can speak with and give them phone numbers and all contact information. If you do not do this you will have to be the go between for your agent and the lender and the process could drag on for much longer than you would like it to.

Once you have done all of this you will need to work with your agent on selling your home. Make sure you get a CMA (comparative market analysis) on the homes in your area. After that you will go through the normal process of selling your home.

When an offer has been received, and signed by the seller, it is turned over to the bank for approval. This step can takes months to complete. If the bank agrees to the terms, you will proceed to closing with they buyer. Keep in mind that Short Sales are a next-to-the-last resort for people who need oto move. They are not ideal and the consequences need to be considered thoroughly.