If you are like many other homeowners on Long Island and in the five boroughs, you may have heard the term “short sale” but you are not really sure what it means. Even if you know that a short sale means selling your home for less than the amount that is currently due on your mortgage balance, you might not know how the deal works or when it is appropriate. Of course, every situation is different, so it makes sense to speak with a specialist in the industry, an attorney or an accountant to find out whether a short sale is right for you.
As much as you might want to remain in your house, sometimes a short sale is the right answer to avoid a devastating foreclosure. With a short sale, you can relocate to a more affordable home and get on with your life, instead of worrying about how you will make your monthly mortgage payments.
Here are some answers to Frequently Asked Questions about the short sale.
Question 1: What is the Definition of a Short Sale?
A short sale occurs when the property nets the bank or other lender less than what you owe on the mortgage. Most short sales take place when the homeowner is “underwater” or owes more on their home than its worth.
Question 2: Is a Short Sale Better than a Foreclosure?
The answer is a very definitive yes! Most often, foreclosures are financially devastating leaving the homeowner owing hundreds of thousands of dollars in debt and judgements. Short sales are designed to provide relief from the financial burden by forgiving the total debt owed. They have less of a negative impact on your credit score and your ability to buy a car or another house in the future.
Question 3: Is a Short Sale Better than a Loan Modification?
Loan modifications are hard to come by, but even if the bank agrees it may not be in your best financial interest. Often the bank will tack back payments and interest to the balance of the loan. They may also extend the loan for up to 40 years, making the total amount owed for the house far more than the house is worth. To add insult to injury, the bank may use an algorithm that requires you to pay more of a monthly mortgage payment than you are paying now.
Question 4: How do I Know if I am Underwater on my Home?
To figure out if you are underwater, you need to estimate how much you can expect to receive if you sell your house at market value. Then request a payoff statement from your mortgage servicer to find out how much you still owe on your mortgage. The payoff statement will include interest and fees. If you have a second mortgage, include it as well. Then subtract the amount you owe from the amount you can get for your house. For example, if you can get $350,000 but you owe $450,000, you are underwater by $100,000.
Question 5: Should I Figure in Real Estate Agent Fees?
Yes! If you can get $350,000 for your house and you owe $350,000, you may feel that you are in a good position. But the amount you net will decrease when you add in real estate agent fees and put you underwater.
Question 5: How Can I Find Out the Market Value of my Home?
A real estate agent can use current data to prepare a Comparative Market Analysis (CMA) for your home. The CMA will show homes that sold in the neighborhood that are similar to yours. It can show how many days each property was on the market as well. If you have a unique home or if there are no recent sales in the neighborhood, you might want to call in a professional appraiser to give you the market value of your home.
Question 7: Can I Go Ahead with a Short Sale, or Does the Bank Have to Agree?
You cannot simply decide to sell your house for less than you owe the bank and walk away from your mortgage debt, unless the bank agrees to the short sale. After all, it is the bank that will take the loss.
Question 8: Why Would the Bank Agree to a Short Sale?
Most often the bank determines that they will be better off allowing you to sell in a short sale than instituting expensive foreclosure proceedings. Foreclosures take time and money, and in the end they will have your house to sell. Some estimates show that a bank can save up to 30% on a short sale over a foreclosure.
Question 9: How Can I Convince the Bank to Accept a Short Sale?
A short sale is more likely if you are underwater on your home, if your bank routinely agrees to short sales, if you have a hardship like a death in the family or a divorce, and you have a buyer who is willing to buy your home. The price should be as close to market value as possible. Here’s how you can convince your bank to accept a short sale and how to get your short sale approved.
Question 10: How do I Proceed if I Want to Do a Short Sale?
A real estate agent experienced in short sales can guide you through the process. You will be required to submit paperwork in a short sale package/application for the bank. The package will most likely include the following:
- A hardship letter
- The CMA (income and expense sheet)
- The offer from a buyer
- Bank statements to support the balance sheet
- Tax returns, W2’s, Paystubs
Getting Help with a Short Sale
Realty Warehouse can help guide you through the short sale process to avoid foreclosure if you owe more on your house than its worth. Our representatives specialize in helping homeowners avoid foreclosure on Long Island and in the five boroughs of New York City by assisting homeowners weigh their options, find alternatives to foreclosure and achieve the best possible outcome. Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. You can count on us to listen to your specific situation, offer the advice you need and provide effective solutions in a stressful situation.
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Call, click or chat with Realty Warehouse for a 10 minute consultation that can change your life.
This blog is for informational purposes only, subject to change.