If major changes in your life leave you struggling to pay your mortgage, you may decide to sell your home in a short sale. When your house is worth less than you owe on the mortgage, the bank may agree to take less as full payment. Convincing the bank to let you short sale your house is a good alternative to help you avoid foreclosure.
So how do you get the bank to agree to a short sale?
How a Short Sale Works
In order to sell your home in a short sale you need the bank’s approval. The bank takes the loss when the sale won’t cover the remaining balance on the mortgage loan, and it considers the lower amount full payment on your mortgage. While you can attempt to work with the bank on your own, in a short sale the bank generally requires the homeowner to work with a licensed real estate agent. Therefore, it makes sense to authorize an experienced short sale real estate agent to negotiate on your behalf. Here are some frequently asked question about short sale.
Figuring Out How Much you Owe
The first thing your agent will do is to find out if the bank started the foreclosure process due to missed payments. If your home is about to be “auctioned off” or foreclosed, you have to act fast. You agent will help you establish how much “negative equity” you have in the home. In other words, if you still owe the bank $250,000 but you will only get $200,000 after the sale, you have negative equity of $50,000. To find out how much you owe you need a title report that shows all the liens against your property. Liens may include a second mortgage, back taxes and missed payments as well as your mortgage.
Selling your House
Your real estate agent can help you determine a reasonable sale price for your short sale based on current fair market values, and then put the house on the market. After you get an offer, the agent will present it to the bank for approval. Since pricing a short sale right is not easy and there may be negotiation involved, it is best to work with an experienced short sale agent. Once you get the short sale approval from the bank, you can complete the sale transaction just as you would in a traditional sale. The buyer takes title to the property, and you walk away from the loan.
The key is to get the bank to approve the short sale.
Getting Bank Approval for your Short Sale
You are in a better position with the bank to approve a short sale if you do not have multiple liens against your property, if you are experiencing long-term financial hardship and if you do not have many assets.
Here are some strategies your short sale agent can use to get your short sale approved:
Deal with the Right Contact
It is important to deal with the right contact at the bank. Usually a short sale is handled by the bank’s loss mitigation department, but smaller banks may use a different department. Your short sale agent can find out the right person to talk to and stay in touch to make sure your short sale is on track for approval.
Start the Short Sale Process
The bank will have forms for you to sign to start the short sale process. Your agent can request the forms and find out if you can fill them out online, or if you have to mail or fax them back upon completion.
Provide Required Documentation
Your bank will ask for multiple documents before deciding whether to approve your short sale. Make sure the short sale package you provide is complete. You will generally be required to provide pay stubs, tax returns and your bank statements.
Write a Convincing Hardship Letter
Your hardship letter can go a long way in persuading the bank to approve your short sale. This is your chance to explain how you got into financial distress, whether it was the passing of a wage earner, an illness, a divorce, the loss of a job or some other reason. You can also mention it if you are a senior citizen, and describe the steps you have taken to resolve your financial difficulties. If the bank’s approval of your short sale will help you avoid bankruptcy, you can indicate that as well.
Price the House Right
Pricing the short sale right is a delicate balance to make the price attractive to the bank, the buyer and the buyer’s lender. The bank will typically accept a buyer’s offer based on recent comparable sales in the area. You may also want to take a look at pending sales for the latest trends. Your buyer, on the other hand, is probably looking for a bargain.
Pick the Right Buyer
The bank is more likely to approve your short sale if you provide strong evidence that your buyer is committed to buying your house and that s/he can afford it. Include a bank letter stating that your buyer is prequalified to buy your home, has made a substantial down payment and has enough money in the bank to cover the sale. Find out if your buyer has a good credit history.
The Short Sale Approval Letter
With some expert advice and a bit of luck, the bank will issue a short sale letter approving your short sale. The letter will include the acceptable sales price, minimum net proceeds and the closing date. The bank will state the maximum allowable commission and closing costs, and the bank will also pay for these costs as well.
Important Tip: Look for a “release of liability” in your short sale letter. Without that clause your bank may have the right to pursue a deficiency judgment and go after you for the amount it did not recoup. In the example above, that would be $50,000. However, this amount can go up into thousands of dollars, depending on how much you owe and how much you pay the bank after the short sale.
Help with your Short Sale
If you live on Long Island or in the five boroughs of New York City, Realty Warehouse can help you decide if a short sale is a good option to avoid foreclosure if you owe the bank more than the house is worth. Our resources and contacts can present your short sale offer to the right person at the bank and guide you through the entire short sale process. We help homeowners weigh there options, find alternatives to foreclosure and achieve the best possible outcome.
Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. Count on us to learn about your specific situation, offer the advice you need and provide effective solutions in a 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.