Short Sale Primer
Short Sale Requirements
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.
- 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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