Real Estate Short Sales
An alternative to Refinancing, Home Loan Modification, Bankruptcy or, Foreclosure.
For a lender that agrees to approve a real estate short sale transaction, they understand that they will probably lose money, but less money than going into foreclosure. This is a loss mitigation decision by the lender; it is financial damage control. However, many lenders believe they will make more money with a foreclosure and therefore won’t allow a short sale to be approved and that is when the professionals really earn their fees.
If a professional can turn around a lender that would not approve a short sale and allow you to sell your property short, then you may be able to forgo the real life damage that a foreclosure or bankruptcy can have on your credit report – your permanent personal financial profile used to determine approvals for loans and interest rate you will be charged. Also, for your own personal satisfaction, a real estate short sale can help you to avoid the embarrassment and stigma associated with foreclosure and bankruptcy.
There are tax ramifications for all real estate transactions and a short sale is no different, so always consult an accountant before entering into any contract. Because of the “Mortgage Forgiveness Debt Relief Act of 2007” you may also want to contact a real estate attorney.
A real estate short sale is probably something that you don’t want to tackle by yourself as there are a lot of details any of which can help or hurt you. Unless you have a complete understanding of the all current Federal and laws and regulations surrounding short sales, you are best served by hiring a competent professional.
The evolutionary process of a short sale is as follows:
First get a pen and paper or a computer. You are going o want to document every step of the way.
Call your lenders loss mitigation department and find out who handles short sales. If they say “we don’t do short sales”, all this means is you are encountering your first of many layers of resistance, but don’t stop there as it is like peeling an onion or objections. Yet at the center of all of the objections and resistance may be a short sale approval just waiting to happen. That is because in this turbulent real estate market, everything is negotiable.
Next, you will have to give the lender authorization in writing to discuss a short sale with you. This letter is commonly called a “letter of Authorization”. On our forum, you may be able to find sample template letters to use.
Have your professional short sale advisor, whether it be a real estate attorney, accountant or even a real estate agent, prepare a “preliminary net sheet” and a “comparative market analysis” for you – these will give the lender an estimate of the values of the home in your area and the final dollar amount that they can expect to receive at closing.
Similar a loan modification, the lender is going to want to documentation any hardship that you are experiencing to determine whether or not you can qualify for a short sale. Again your short sale agent can help you prepare that.
As with any loans in today’s environment, you will be asked for documentary evidence of your finances. This will include proof of assets and liabilities, your current and future employment status, your bank statements, etc… The lender will most likely pull your credit report as well.
All in all, if you are in the unfortunate position where foreclosure or bankruptcy is a looming possibility or a definite reality, to avoid all of the other negative ramifications, a good tip is to try and do a short sale first.