Don’t be fooled that the short in a short sale does not refer to the time it takes to complete a sale, but rather, it refers to a purchase price that is significantly lower than what the homeowner owes to their mortgage lender. For the sake of this article, I will take a look at what a typical short sale process is, its advantages, disadvantages, how to get to seller’s lender to agree to sell a property, and how to find a property.
Understanding Short Sales
It would be an ideal situation for the lender to pay off the existing mortgage while also making a profit. However, sometimes homeowners owe a lot more on their property than the market is going to pay, which is coined as being “underwater”. In this case, short sales will occur in which the homeowners will sell their property for less than what they owe to their mortgage lenders.
It is both a priority to the seller and lender to attempt a short sale in lieu of the homeowner’s financial difficulties to avoid foreclosure under any circumstances. Homeowners experiencing financial difficulties can take advantage of short sales by making a below-mortgage offer to an eager buyer.
Regardless of how the process begins, a short sale must meet four requirements to proceed:
- There must be a qualified seller: A homeowner must have an eligible hardship.
- There must be a qualified buyer: The qualified buyer must not be connected in relation or affiliated with the seller and must have adequate financing in place.
- There must be a reasonable offer: The buyer must make an appropriate offer on the house that is in line with the property’s fair market value.
- There must be agreeable lender(s): Someone who has a title interest to the property must agree to the terms of the sale.
Lastly, I have one of the most critical requirements for you yet. In this particular form of real estate transaction, even if a buyer and seller are in sync, the ultimate decision lies in the hands of the seller’s lender. The lender considers many factors before the short sale occurs, such as loss-mitigation options. If he deems the offer unacceptable, he is within his rights to reject the offer in its entirety.
Take a look at the following steps to understand how a short sale works:
- It is confirmed by the homeowner that they qualify for a short sale with the lender by answering a series of financial questions and submitting any required documentation. This would also include a hardship letter.
- The lender partakes in a property appraisal to analyze the fair market value. This valuation letter is then sent to the seller with an expiration date.
- The homeowner’s broker lists the property on the market for sale.
- Offers are obtained on the property, and then the highest bids are submitted by the homeowner’s real estate agent to the lender. It also includes documentation proving the buyer’s financial qualifications, an earnest money deposit, a purchase contract, and the description of the property put on the market by the agent.
- The lender accepts the offer, or the lender submits a counteroffer.
- Once all parties agree, the sale occurs under terms laid out by the lender.
- Upon closing, the homeowner is released from either some or all of the original loan responsibilities.
Are you concerned about how to get started? It would help to talk to a real estate professional at Martin McFarlane. Give us a call now so I can discuss your case in more detail.