How a Real Estate Short Sale Really Works
How a Real Estate Short Sale Really Works
A real estate short sale situation may be right when a homeowner is in foreclosure and the loan amount is close to the value of the home. The seller cannot sell the house with an agent because the fees involved exceed any moneys received from the sale. What can you do?
If you own a house and are late on your payments, you might want to learn more about short sales and if a short sale is right for your situation. Banks will consider a short sale in lieu of getting the home back. The bank takes less than what is owed on the loan.
An example would be, if you owe say 0,000 dollars on your home and you are facing foreclosure the bank might take 5,000 dollars and you’re off the hook for the balance. Bank will consider a short sale because if the bank continues to foreclose they most likely will get the house back – and that’s bad news for a bank. They will then have to hire a real estate agent, make any necessary repairs, wait several months in hopes of getting an offer, that, they still might lose money on the process. It’s far simpler for a bank to sell the property to a cash home buyer and cut their losses. The most beneficial point to a short sale is that the seller does not have a foreclosure on their credit report, just a loan adjustment.
A key component to all short sales is that the owner(s) need to be completely up side down and was victim of some kind of a hardship – out of the ordinary event that caused the default; such as illness, accident, loss of job, etc.
Sometimes the only way you can sell a house and protect your credit is through a short sale. It allows you to sell your house really fast, gets you out of the loan responsibility and you can go on with your life. You almost always need a cash buyer/investor to handle the process correctly, ensuring a successful transaction. Banks want you to use an investor because they want to close out the loan as soon as possible.
Explanation of a short sale A short sale occurs when a lender agrees t accept less that the amount owed to payoff a loan as an alternative to foreclosure. If the property is worth less than the amount owed on the loan, then even if the lender forecloses and takes back the property, they know they are going to take a loss. We can often convince the lender that they will benefit better if they take less than what is owned now rather than taking the property back by foreclosure and trying to sell it later.
Typical Time Frame The short sale negotiation process is a lengthy one. It may take several weeks or more likely several months to get an approval. Lenders have several layers of bureaucracy, insurers, and investors that we will have to maneuver through in order to get a short sale approved. So it is important to be patient during this long process.
My House if going to foreclosure, it there enough time? Not always. Just staring a short sale won’t automatically stop a foreclosure. However, many times an experienced short sale negotiation service; such as TheShortSaleHouse.com, or seasoned agent can convince a lender to stop the foreclosure to let them attempt to negotiate a short sale. So, while there are no guarantees, it does not hurt to try.
How long can I stay in the house? The key word is short sale is sale. The purpose of a short sale is to get the property sold. So you will need to move. We aren’t a program that can stop a foreclosure and allow you to keep the house indefinitely. It will be easier to sell a house if it is vacant, so you should make plans to move as soon as possible,
How do I know this will work? You really don’t. No one should make any promises to you that this will work, Once you missed a payment, the lender is in charge and can proceed to foreclosure if they want to. But you know they don’t want to and the negotiator should be very good at presenting alternatives to the lender that they often want to accept rather than foreclose. They should be very good at what they do, but NO PROMISES are being made as to where or not the lender will accept a short sale – every lender is different.
How much money will I get? You can’t get any money. A universal requirement of lenders in granting a short sale is that the borrower will not get any proceeds from the sale of the property. The lender is going to take a loss on your loan – they are not going to let you get any money. If you have something of value, the buyer may be willing to buy that item separate of this short sale.
What happens is this does not work? Your house will likely go to foreclosure. A short sale is something you should try after you exhausted all your other options.
What is a “RELEASE?” A lender may offer to ‘release’ its security interest against the property in exchange for less than the total amount of the note. A release will allow the property to be sold without paying off the obligations of the note. However, the note is not satisfied.
Advantages: This successful short sale will allow the property to be sold and thus avoid a foreclosure.
Disadvantages: The remaining debt on the property (sometimes called a ‘deficiency’) still exists. You are still liable for the note – in other words – you still owe the money.
Reality: It is not likely that the lender will pursue the deficiency unless you have other significant assets, and if you don’t try a short sale and the property goes to foreclosure, you are going to have a deficiency anyways.
What is a “satisfaction?” A lender may agree to accept less than it is owed as complete and total satisfaction of the note and release its lien against the property.
Advantages: Your note and obligation to the lender are satisfied for less than you owe. When the property is sold, the debt is paid off completely.
Disadvantages: You may have some tax consequences that you should discuss with your tax adviser since the lender is making money you owe disappear. Sometimes our negotiations are successful in obtaining satisfaction. Sometimes all the negotiator can get is a release.
The lender will require review of financial package that usually includes: two months bank statements, two months pay stubs, two years most recent IRS tax returns, and other common information. The leading cause of delay and even denial of our offer to the lender is caused by the seller failing to deliver these items in a timely manner.
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