If you owe more to the bank than the property is worth in today’s market, you may think that foreclosure is the only option. After all, if you sell, you will not recoup enough to pay off the mortgage loan. Why would the bank accept less than you owe on your mortgage balance? The fact is the bank or other lender may be willing to do just that. If you live in on Long Island or in the five boroughs, selling your house in a short sale and moving on to a more affordable residence can be a good alternative to foreclosure. You may even get cash for relocation after the short sale.
The Short Sale Process
In a short sale, the bank and other lien holders on the property agree to take less than the full amount that you owe after you sell. Before listing your home, you must contact the bank that holds your mortgage and apply to their short sale program. Guidelines vary from bank to bank, and there may be state regulations as well. You can enlist the help of a short sale specailist to help you convince the bank to take a short sale on your home. Before agreeing, the lender may try to put you into a loan modification program.
Once you are accepted in to the short sale program, you can put your house up for sale. It is important to convince the bank to include a clause in the short sale agreement that they waive the right to a deficiency. Without that clause, the bank may ask you for the difference between what they get in the short sale and the amount you actually owe on the mortgage. So if you owe the bank $200,000, and the bank recoups $150,000 in a short sale, they can go after you for $50,000 in a deficiency judgment unless your agreement specifically prohibits that action.
Convincing the Bank to Take a Short Sale
If you can convince the bank that you are struggling to pay your mortgage and the situation is unlikely to improve, they may decide go along with a short sale. A short sale can cost the bank far less than a foreclosure, which is a very expensive legal proceeding. Foreclosure is an adversarial process that goes through the court system and takes up a lot of time. In contrast, with a short sale all parties come to an agreement willingly. The actual short sale process is similar to a regular sale where you, the seller, accept an offer from a buyer, usually with the assistance of a real estate agent experienced in short sales.
To convince the bank to take a short sale, you will need to provide documentation in a Short Sale Package which some banks will accept online. These are some of the items you will need to provide:
A Seller’s Hardship Letter
This is where you tell your story about why you can no longer affording your mortgage payments and why you are unlikely to be able to afford them in the future. You can also outline what you have done to find a solution (like try to sell your home at a price that would pay off the mortgage). Be sure to include your loan number, and date and sign the letter.
A Comparative Market Analysis
If prices have dropped, prove it with a CMA that shows the selling price of recent sales in the area. The CMA should be able to justify the sale price of your house in a short sale.
An Offer to Purchase
Include a fully complete contract to purchase your home. Be sure that the address of the property is included, along with the date and signatures of all parties. Check to see if an electronic signature will be accepted by the bank.
Provide your last two bank statements with an explanation of any large deposits or withdrawals, as well as your last two tax returns, W2 forms and/or 1099’s.
A Balance Sheet
Show your expenses and income so the bank can see why you are having difficulty meeting your monthly mortgage payments.
Estimated Closing Costs
Closing costs differ from house to house, so provide an estimate of items such as appraisals, title insurance and property tax.
Pros of a Short Sale for the Bank
The bank may decide that cooperating in a short sale is preferable to the complicated and oppositional lawsuit of foreclosure. For the bank, a foreclosure can have unforeseen obstacles to collecting on their loan. Carrying costs such as taxes and insurance can rise and there may be liability issues on repossessed properties such as trip and fall issues. In addition, there is no guarantee that the foreclosure will end at an auction of the property. You may be able to tie up the foreclosure in court with law suits and appeals.
At the end of a short sale, the property has new owner. At the end of a foreclosure, the bank ends up with a property on its hands that must be sold. Also, it is unlikely that the bank will recoup more toward settling the mortgage in a foreclosure than a short sale, especially if market conditions are not improving. Add in the costs of foreclosure, and the bank may decide it makes more sense for them to work with you in a short sale.
Short Sale Help
Every situation is different, and you have to weigh the pros and cons to come up with a viable alternative to foreclosure. Realty Warehouse can help if you live on Long Island or in the five boroughs of New York. We specialize in helping homeowners like you choose the right option, whether it is a loan modification, a short sale or a rent-to-own agreement. Our relocation department can help you find more affordable housing, and we may be able to help you get money for the relocation process. Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. You can count on us to offer the advice you need and provide effective alternatives in this extremely stressful situation.
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.