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When you’re in jeopardy of losing your home, the thought of a foreclosure is naturally concerning; damaged credit may also prevent you from buying another home for many years to come. But before you surrender to a foreclosure, you may have some other options to consider. One of those options is working with your lender to do a short sale. If you’ve never heard of a short sale before, you’re not alone. Many homeowners don’t know they exist or don’t know how the short sale process works until their home is at risk of being foreclosed. To get you started, let’s review some key facts.
A short sale is an option for homeowners experiencing hardship (loss of a job, divorce, bankruptcy, medical issues, death, or relocation for work) and don’t have enough equity in the home to be able to pay off the remainder of the loan. In other words, short sale is an option when what you owe on the home is more than what it would sell for. A short sale would allow you to sell your home for less than what you owe without having to pay your lender the remaining balance. This option would entail working with your lender to accept a lower amount to pay off your loan, thereby forgiving the balance of your loan.
So why would a lender consider taking a lower payoff? Preventing a foreclosure may make more sense for your lender. Your lender may find that accepting a lower pay-off amount is a better deal than spending time and money on the upkeep of a home until it can be sold again after foreclosure. There’s also no telling how much the bank will ultimately sell the home for. More often than not, a short sale offer is more than a bank would get from a foreclosure auction. But keep in mind that short sale requests are denied for various reasons, especially if there’s more than one lien against the property. All lien holders must agree to the short sale under the same terms
First, draft a letter of authorization allowing your agent to contact your bank on your behalf. Once the bank has your authorization, your agent can request a short sale application. The application will usually require you to put together a short sale packet, which includes various documents that the bank will assess to approve or deny your short sale request.
The short sale packet required by your lender typically involves the following documents:
Keep in mind that incomplete packets may delay the process, so it’s important that you have everything ready to go.
Based on comparable homes that have sold in your area, your lender will come up with a listing price, known as the broker price opinion (BPO). You’ll need to sign a listing agreement with your real estate agent to put your house on the market at the low end of fair market value.
Once you have a bona fide offer, your agent should send your bank the listing agreement, the executed purchase offer, the buyer’s preapproval letter, a copy of the earnest money check, proof of funds, and the seller’s short sale package. Your contract should clearly state that the sale of your home is contingent upon the lender’s approval. Your lender may likely request an arm’s-length affidavit to affirm that the seller isn’t asking for a lower payoff amount to help out the buyer.
Your bank’s loss mitigator will assess all the data in your short sale packet to ensure that the short sale makes financial sense for the bank. The mitigator will also check for any liens on the property and discuss the broker price opinion (BPO), or listing price, with your agent. Because short sales aren’t the ideal outcome for lenders, don’t expect an answer from your bank right away. Just make sure both real estate agents (seller’s and buyer’s) continue to stay on top of the lender to keep the process moving.
If the bank approves the offer, it will issue a letter outlining the terms of the short sale. It may also approve a deal contingent upon the seller meeting certain stipulations. But be aware that it’s not uncommon for lenders to reject an offer outright or to not respond at all.
If your short sale is approved, your bank should provide a preliminary statement showing the date of closing, closing costs, any liens, and the proceeds from the sale that will go to the bank.
Now, it’s time to close the deal with the buyer. Remember that you (the seller) will not receive any proceeds from a short sale. However, you should request a statement from the bank relieving you of paying off the mortgage balance after the sale.
If you want to avoid the long short sale process and paying realtor commissions, contact Arbor View Properties in Atlanta to learn more about selling your house quickly for cash.
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