Short Sales Explained
What is a short sale? A short sale is a program that allows a borrower to sell the property, even if the proceeds are less than the loan payoff, due to a low property value. The lender accepts a "short" or reduced payoff. The borrower avoids further collection activity and foreclosure action, which could negatively affect credit reporting and possible tax liabilities.
Who can be considered for a short sale? If you have an involuntary hardship and can no longer afford the monthly payments on your mortgage and if you are unable to sell your home for the full amount owed on your mortgage, you may be eligible for a short sale.
Typically the lender will need the following:
- Fully executed listing agreement with a Realtor
- A mocked closing or settlement statement (HUD-1)
- Require proof of hardship, usually in a dated letter
- Possibly past year's tax returns and recent pay stubs
Once the above is sent to the lender's loss mitigation department, then the process of the lender assigning a negotiator can be begin. This person will make sure all the documents are in order.
Meanwhile, the property is on the market and actively being marketed. Once a contract is submitted, the offer will need to be approved by the seller and sent to the lender for their approval. This will trigger the lender to order a BPO (Brokers Price Opinion or third party opinion on the value of the property). The offer will also need the buyer's pre-qualification letter or proof of funds if it is a cash offer.
Frequent Questions About Short Sales:
How long does the process take? It can vary depending on the lender and the specific mortgage situation of the property in question. Some lenders are faster and more efficient than others. Some properties may have more than one mortgage and in some case more than one lender.
I have a loan with my lender but they say there is an investor involved. What does that mean? In short, the lender of the original loan has remained as the servicer of the loan. You continue to pay your monthly mortgage payment to the original lender. However, the lender has packaged your loan (usually as a bundle with other loans) and sold it as an investment to an outside investor. These investors could be other banks or perhaps a large state retirement funds. But either way, in asking your lender to accept as a payoff on your loan less money that what is currently owed requires the lender to act as intermediary to have the investor accept less as well. Again, some lenders and investors are more efficient than others. The general rule of thumb is four and a half weeks from the date of the offer to have a response back regarding the offer from the lender.
Is a short sale a bank owned property? No, the short sale process is an attempt to sell the property before the lender steps in and forecloses. In Alachua County and Gainesville there are a number of attorneys and title companies adept at the process of navigating the short sale process and this has greatly reduced the number of bank owned properties on the market in our area.
Can the lender require the seller to pay the difference between what is owed and the short amount? In some cases the lender or investor can require the seller to sign an unsecured note for the difference. The seller is made aware of this requirement in the initial response from the lender about the offer or offers.
In Gainesville I have had success marketing and representing buyers on short sales. I work with a great group of attorneys and title companies and would be happy to talk frankly with you about the short sale process. If you are a seller, most lenders will not accept your short sale application unless a Realtor has listed or agreed to list your property. Due to the complex nature of the transaction, as a buyer of a short sale in Gainesville, I highly recommend you have an agent involved in protecting your interests.
Are these distressed homes? In most cases the offer will need to be "As Is." This gives you the right to inspect the home but does not obligate the seller to perform repairs. But I have seen exceptions including where the lender has opted to pay a repair necessary to facilitate the sale.
How do I find short sales in Gainesville in other parts of Alachua County? Send me an e-mail and I would be happy to send you a list of all of the short sales in our MLS.