How to Sell Your Home in a Short Sale
Difficult times occasionally hit everyone, homeowners included. Sometimes, homeowners find themselves needing to sell their homes, though finding that they owe more on the home than what they can sell it for. In most cases, however, these types of homeowners may be able to sell their home in a short sale to avoid having their home go into foreclosure. It's not an ideal scenario, but it can work to a seller's advantage once they understand the process.
The Perks of a Short Sale
Sellers who want to protect their credit score during a financially uncertain time should know that they'll typically lose fewer points during a short sale than a foreclosure. How much the seller loses depends on how many mortgage payments they've missed and how the lender reports the short sale. Lenders may label the loan as either settled or paid debt. Depending on the state where the seller is located, the short sale sellers have some degree of control over this labeling. They might be able to petition their lender to choose the 'paid' label for a milder hit to their credit score. Sellers can also often negotiate a waiver with their lender. In this case, the lender and seller will work out a reduced settlement agreement. Once the settlement amount is paid by the seller, the lender releases the borrower of liability.
In all cases where there is a mortgage lien on the home, sellers aren't allowed to sell their home in a short sale without getting the lender's approval first. Since a short sale means that the lenders will usually get less than what they're owed, it's not always a guarantee that the lender will allow a short sale. Lenders have to weigh the costs of what they're losing on the loan against how much money and time they'll need to invest to sell the home on their own. Lenders will typically ask for some type of proof from the homeowner that they are unable to meet their mortgage obligations. This may include anything from a recent chronic illness to a required job relocation.
Reviewing the Finances
When asking a lender for the permission to have a short sale on their home, lenders will likely look at the homeowner's total assets and total debts. If the ratio of debt-to-income has risen recently, it's more likely the lender will approve the short sale. If the home owner has excess savings, lenders may ask for part of a homeowner's savings to offset their own losses on the loan. If homeowners have any liens on the property (e.g., from a recent home remodel, etc.), they'll need to inform the lender. Buyers may also need to provide a market analysis of their home to the lender, showing how much their home is likely to sell for - though a qualified short sale real estate agent can assist for this process.
The Short Sale Process
After the mortgage lender gives their permission for the short sale to move forward, the homeowners can list the property for sale. In most cases, and it's advised, most homeowners will work with a real estate agent who will list the property. The real estate agent will then list and market the property as they would any others, though it will be disclosed as a short sale. The agent may also also serve as a go-between the lender and the buyer. In most cases, once an offer to buy the home is received, it's the agent who presents the offers on the property for approval, not the homeowners. It's not unusual for a short sale to last several months of back and forth until the lender is finally satisfied. Those who have a second mortgage will need to have both lenders approve the final offer.
Handling the Details
Sellers are highly encouraged to choose a real estate agent with plenty of experience in short sales. In this case, experience is far more important than any certifications the real estate agent may have. Real estate agents need to be willing to commit to these time-consuming sales, so they can showcase the property in the best light. In addition, sellers may want to ask the agent more about the terms of their short sale. Some states allow lenders to come after sellers at a later date to collect the difference between what the home sold for and what the owner still owed. This makes the negotiation of a liability release that much more important.
The majority of hurdles are usually during the sale period. Buyers often are getting the home at a discount, meaning they don't have a lot of leverage to ask for multiple contingencies. In other words, most short sale homes are sold on an "as-is" basis. Once the sale has been approved, the buyer needs to have their loan approved and the funds transferred. This is usually the trickiest part of the transaction because buyers in a short sale aren't allowed to lock in their interest rate at the time of their loan application. If rates rise drastically from the time they start looking to the time the offer is approved, they may still back out of the sale because of the interest rate increase.
Short sale sellers may feel as though they're in a bind, but they also have a tremendous opportunity to get out from an underwater home and start fresh. The lender and Mancos real estate agent are professionals who can help a seller with a short sale to hopefully move on with their lives.