Short Sale Primer
- Market Value of subject property is less than the balance due on the 1st mortgage
- Mortgage holder agrees to take less than the balance due on the mortgage loan
- Homeowner falls into a “hardship” category due to income loss, involuntary relocation, or other pre-designated condition.
- Faster than a foreclosure, which involves long wait times, Attorney Fees, and often low (or no) proceeds upon Sheriff’s Sale.
- Cheaper than foreclosure, in which Bank must pay expenses like taxes, maintenance, and insurance, they generally can’t recover.
- In a foreclosure the bank must write down its bad loan, take possession of the property, and resell it through a broker – adding further expense to its balance sheet.
- Avoid foreclosure, which looks worse on their credit report than short-sale.
- Move on to their next home and begin rebuilding credit.
Protected several ways in the process
- Property Taxes are prorated at 100%
- Acceptance contingent on the Bank
- Property sold “As Is” no warranties
- Banks often pay to assist with move
- Sellers often do not provide a survey
- Acquire property at historically low prices.
- Get historically low interest rate financing.
- Obtain historically unique incentives
Homeowners Who Are...
Upside-Down: Owe more than property value In Default: At least 30 days past grace period Experiencing Hardship: As defined by
- Job Loss
- Job relocation
- Prolonged illness
- Death in the family
- Involuntary pay cut
- Special assessment
- Short Sale Package submitted (1-2 weeks)
- File assigned to negotiator (1-2 weeks)
- Negotiation of terms (4-6 weeks)
- Approval and Closing (2-4 weeks)
- Authorization to Release Information
- Letter of Explanation of Hardship
- Financial Worksheet and 2 years taxes
- 2 mo.’s bank statements and pay stubs
- FHA Only Application for Short Sale
- FHA Only Homeowner Counseling
- Copy of a bona fide purchase offer
- Estimated Settlement Statement
- Comparable Market Analysis (CMA)
The single most-important factor is the CMA or Appraisal.
Banks can discount the pay-off on the loan to a % of the property’s appraised value, depending on the type of loan. For instance
FHA loans: Insured at 82% of appraised value VA loans: Insured at 88-91% of appraised value Conventional loans: 85-92% of appraised value
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