1 Reason Short Sales are Difficult
- Because the payback of the loan will be ‘shorted’ by a significant amount and the lender will have to take a loss, your lender must approve the Short Sale before the house can close.
2 Reasons to Consider a Short Sale
- Helps you avoid foreclosure.
- Allows you to sell an upside-down house without incurring insurmountable debt.
3 Requirements to Get a Short Sale Approved
- You owe more on your loan than your house is worth.
- You can’t keep up with loan payments due to unemployment, relocation, divorce, medical expenses, or other financial hardship.
- You have no other choice but to sell and move on.
4 Short Sale Complications
- Your bank may counter the contracted price with a higher price.
- Your bank may drag out the Short Sale process.
- Your bank may require a cash contribution or promissory note from you.
- The buyer may back out of the contract.
5 Negative Impacts of a Short Sale
- You may have to pay income tax on the forgiven loan amount. Be sure to consult a tax expert.
- The approval letter may hold you liable for the loan deficiency (forgiven portion of loan). Be sure to consult an attorney.
- You won’t be able to purchase another house for 2 years.
- Your credit rating will be affected.
- You’ll lose the investment you made in your house.
6 Short Sale Benefits
- Allows you to sell your house and start over.
- Helps you avoid foreclosure.
- Completely eliminates or substantially reduces your financial liability.
- Minimizes damage to your credit rating.
- Lets you to purchase another house in 2 years.
- Allows you to take care of the problem responsibly.
7 Documents Your Bank Needs to Approve the Short Sale
- Letter of authorization that lets your real agent speak with the bank on your behalf
- Personal financial statement
- Letter explaining hardship circumstances
- 2 years of tax returns
- 2 years of W-2 forms
- Most recent 2 months of payroll stubs
- Most recent 2 months of bank statements
8 Qualifying Hardship Demonstrating Your Need for a Short Sale
- Unemployment or reduced income
- Divorce or marriage
- Illness or disability
- Job transfer or relocation due to personal reasons
- Bankruptcy
- Death
- Negative cash flow on investment property
- Other changes in family, personal or financial circumstances
9 Services Your Real Agent Should Provide
- Counsel you on the Short Sale process.
- Provide full marketing support.
- Set up a pricing strategy that will get a contract within 30 days.
- Help you prepare necessary paperwork.
- Help you compose the hardship letter.
- Transmit all documentation to your bank.
- Keep in weekly contact with your bank and report back on process.
- Transmit instructions to the bank on your behalf.
- Coordinate closing of sale.
10 Requirements for a Strong Short Sale Contract
- Negotiated price should be within 90% of the current market value.
- No seller-paid closing costs.
- No FHA or VA financing.
- Earnest money deposit should be at least 1% of purchase price.
- Signed as-is contract including right to inspect.
- Contingency for 3rd party approvals.
- Time period allowed for bank approval should be at least 4 months.
- Contingency for homeowner’s approval of bank terms.
- Backup contracts allowed.
- Accompanied by the buyer’s mortgage loan pre-approval.
11 Steps to Short Sale Success
- Prepare your house for showing.
- Put your house on the market.
- Show your house in usual manner.
- Let your agent apply pricing strategy based on showing activity.
- Negotiate a strong contract.
- Prepare Short Sale Package for submission to bank.
- Let your agent follow up with lender on regular basis.
- Keep cool, collected and patient.
- Obtain written approval from lender.
- Close on sale of house.
- Start over with clean ‘financial’ bill of health.
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