Saturday, October 17, 2009

Sellers and Short Sales

"Short sale" is a phrase that has been mentioned often in the news over the last year or so. We have found that though most people have heard of it, there is confusion over exactly what it is.

If a homeowner is in a position of needing to sell a house, but the current value of the home is less than the mortgage, that owner is in the position of needing to sell short. Sometimes sellers will bring money to the closing table from savings to cover the shortage. Sometimes sellers will be able take out a personal loan to cover the shortage. Other times, the seller will ask the bank to write off the extra amount, take a loss. It is this third instance that the media keeps talking about.

There is no such thing as a typical short sale, but all short sales have one thing in common: they take extra time. There are things that sellers can do, however, to shorten the amount of time it takes.

Before a bank will agree to a short sale, they need to gather certain data from the homeowner. They need documentation of the hardship the seller is experiencing, the reason why the seller is in trouble. The bank will need a complete financial statement from the seller to document that there are no liquid assets that could cover the loss and that the seller is unable to continue paying the mortgage as it stands. The bank will have to order an appraisal of the property to determine current value.

If a seller is proactive and starts talking with the bank as soon as listing a home at a short sale price, the process will be a bit quicker and easier. Buyers are not always willing to wait in limbo for three months or more for the short sale process to be completed. Also, there are no guarantees that short sales will go through at the price that a buyer accepts. A bank might determine that the house is worth more and reopen negotiations.

Some people find financial matters hard to deal with, especially when they are experiencing hardships. Procrastinating and ignoring these issues, though, will not make them go away. Instead, it can cause delays in the short sale process that prevent a short sale from being able to happen in a timely fashion and result in the home going into foreclosure instead.

Sellers, if you are facing a situation that might require you to sell short, it is better to be open and up front with your bank and your realtor.
When hiring your realtor, ask how familiar with short sales he or she is. It is a more complex process requiring more work of your realtor, and an realtor with short sale experience can help the process go more smoothly. Start the process with your bank as soon as possible. Contact the bank, explain the situation and request that they send you the packet of documents you will need to fill out. When you get the packet, tackle it immediately; it really will be a weight off your shoulders.

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