Understanding How Short Sales Work and How it can Prevent a Foreclosure
The news is full of reports of rising foreclosure rates around the
country. While short sales have received less coverage in the media, they are also
on the rise as homeowners seek alternatives to foreclosures and the effects
foreclosures can have on their future credit. Short sales are special opportunities
that make it possible for homeowners to reduce the amount of financial impact they
experience when they default on a home loan. It is important to keep in mind that in
order to take advantage of the benefits offered by a short sale, the lender must
provide approval and that is not always an easy task. It takes perseverance and
patience.
Most lenders today follow similar protocols for short sales, but
every lender is different and the process can vary somewhat. There are two basic
standards that most lenders will follow. First, the property involved in a short
sale will be sold for less than the amount that is owed on the mortgage. Second,
in order to qualify for a short sale, the involved property must not have already
entered the foreclosure process. If you want to take advantage of a foreclosure,
it is imperative that you take action before the home actually goes into foreclosure.
Borrowers absolutely must take a proactive stance in making contact
with their lender when they recognize they are no longer able to afford to make
their mortgage payments. Owners who procrastinate may very well find themselves in a
position where they miss out on the opportunity to avoid foreclosure and benefit
from a short sale. As a result, you might find that you have no choice but to be
subjected to the financial effects that can result from a foreclosure for many years
to come.
In order to qualify for a short sale, be aware that you will also
need to demonstrate that you are truly in a difficult financial situation. Usually,
this means you will need to prove that you owe more on the home than what it is
worth. Short sales are usually handled through the loss mitigation department of the
lender that holds the mortgage. The loss mitigator will act as a mediator and will
be responsible for working with the homeowner through the sales process.
Lenders may offer homeowners options that can make it possible for
them to remain in the home before they agree to enter a contract for a short sale.
Such options might include mortgage refinance, loan modifications, forbearance
agreements or deferred payments. It should be kept in mind that even with a short
sale banks will usually incur a financial loss. Therefore, short sales are only
offered when all other solutions have been exhausted or do not exist.
Borrowers will usually be required to provide financial records once
a short sale option has been presented. These documents can include tax returns,
wage statements, bank statements and a detailed list for expenses and income. The
bank may also require information related to assets and financial portfolios.
Furthermore, the borrower may also be required to submit a hardship letter that
details the circumstances that resulted in the financial difficulty. Hardship
letters can be extremely important and can even make or break a short sale, so a
concise and well-written letter is imperative.
When writing a hardship letter, it is important to remember that a
real human will read it. Present your story in a way that someone else can relate to
it, but avoid sounding like a victim. Include information regarding steps you have
taken to overcome the financial challenges that caused the problem. Banks will
usually be more willing to work with persons who are taking steps to overcome their
problems.
Be certain you have everything in order and have provided all
requested documents. This can make the difference between having your short sale
approved and having it denied.
Once the short sale has been approved, the next step in the process
will be to sell the property. In most cases, lenders will require that borrowers
locate a qualified buyer for the property before approval will be granted for the
short sale. Other lenders may agree for the property to be listed through a realtor.
Prospective buyers for short sale properties will usually need to obtain preapproved
financing, unless they are buying with cash.
Finally, make a point to find out from the lender whether you will
be held responsible for any difference between the amount owed on the mortgage and
the sales price. It can take years to repay such a difference and can significantly
impact your financial future, so do not overlook this important point.
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