A short sale occurs when you sell your home for the current market value which is/may be less than what you owe on the property. The lender must approve the short sale based on documentation provided by you and your agent. They will take a loss on their loan. If you are in a situation where you must sell your home due to financial hardship and are or may be facing foreclosure, then you might be a perfect candidate for a short sale.
A foreclosure occurs when the lien holder, usually a bank, exercises its “lien: rights and sells a home at auction. The lien holder obtains a lien (an ownership interest in the property) when a borrower takes out a mortgage. The lien helps protect against a significant loss by allowing the lien holder to foreclose on the home and sell it at auction if the borrower stops making the agreed-upon payment (defaults on the loan).
Federal law prohibits a bank from initiating foreclosure proceeds before a homeowner’s mortgage payment is 120 days past due. The purpose of the federal waiting period is to help the homeowner stay in the home. The extra time gives the owner a chance to find a way to bring the loan current or to apply for a loss mitigation program.
I’ve Received a Notice of Default – Is It Too Late to Begin a Short Sale?
Not necessarily. In many cases, you may still have time to list your property, get an offer, and submit the paperwork to your lien holder to start the Short Sale process. Usually, once a Short Sale has been filed with your lien holder all the necessary documents, many lien holders will postpone the foreclosure and consider a short sale. Time is of the essence, so the sooner you begin, the sooner the foreclosure can be delayed.
Why Would You Choose to Short Sale Your Home?
When Short Selling your home you are asking your lien holder to release you from any deficiency judgments. This is always negotiable with a short sale. If the bank forecloses on your home, they will automatically have the right to pursue a judgment. Also, a foreclosure will have a stronger effect on your credit rating – much more than a short sale.
Starting the Short Sale Process
To begin the short sale journey, the key is finding a real estate professional experienced in short sales in Las Vegas who can guide you through the process each and every step of the way, from beginning to end. Once you have found a real estate agent, you’ll need to sign a 3rd Party Authorization which allows them to speak to your bank on your behalf throughout the short sale process.
Next, you will need to prepare your home to list for sale as well as gathering the necessary paperwork that will be required by the bank. Once you have received an offer on your home, the process will begin. The key to a successful short sale transaction is submitting the paperwork as accurately and completely as possible and submitting the best possible offer to the bank. Any one thing that is not complete or is missing will only delay the sale. A good real estate agent will submit accurate paperwork and will be able to detect a strong offer.
How Long Will a Short Sale Take?
Every short sale transaction is unique upon itself compared to other seller situations. Things to be considered are how many loans on the property and as well as how quickly you and your agent respond to the lien holder’s needs and requests. Also, how quickly you list your home and get a strong offer on your home will all be a factor for completing a successful short sale transaction. Though there is no definite answer, generally short sales can take anywhere 3-6 months, but can take longer.
Can I Stay in My Home During the Process?
Yes, in most cases, you may be able to reside in your home until the short sale is completed. If you remain in your home and are unable to make your monthly mortgage payment, it’s highly recommended that you remain current on all HOA and utility bills. These companies will tack a lien on your property if you fall behind. Liens on properties going through a short sale can delay the transaction, if not prohibit the entire transaction from closing.
What Documents are Required to Initiate a Short Sale?
- Hardship Letter
- Last 2 Years Tax Returns
- Most Recent Bank Statements
- Most Recent Paystubs
- Profit and Loss Statement (if self-employed)
Each lien holder has their own short sale requirements, therefore requested documents may vary. These documents are the most commonly requested.
What is Considered a Hardship?
A hardship need not be a financial one. Most people and banks understand a financial hardship, but another reason for a hardship can be relocation, medical, divorce, perhaps your home has stairs which you can no longer climb, etc. There are many reasons for a hardship causing a reason to sell your home.
What if my Short Sale is Not Approved?
The last thing banks want right now is a foreclosure. If your short sale has been denied, you and your agent need to find out why, whether it was due to price or missing paperwork, or perhaps your hardship wasn’t sufficient. Whatever the reason for the denial, your next step is to call your bank and ask for any other options available to you other than foreclosure. Some banks may offer a deed in lieu of foreclosure.
Will You Be Liable for any Deficiency?
Possibly. Negotiating a deficiency is key to a short sale transaction. When negotiating a short sale, your agent and you can request that the bank waive its right to a deficiency judgment. There are three scenarios for a bank to handle a deficiency. They may attempt to collect the balance from the seller after the deal closes, they may require the seller to sign a personal note to pay the deficiency or they may cancel the entire deficiency completely.There could also be tax implications if you did a cash out refi which would need to be discussed with your CPA.
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