Banks sometimes offer real estate short sale agreements to borrowers who are unable to continue paying home loan payments. With this type of agreement, mortgage lenders agree to accept than the outstanding balance in exchange for a quick sale. While short selling can provide borrowers with financial relief, this strategy may not be the best solution.
Obtaining real estate short sale approval is a complex and lengthy process. Borrowers who have received a foreclosure notice are ineligible for this option. Additionally, banks do not allow homeowners who possess accrued home equity or own financial assets that could be sold to cure mortgage arrears to enter into a shortsale transactions.
Short sales are managed by each lender’s loss mitigation department. A loss mitigator is assigned to work as a mediator between borrowers and lenders. Loss mitigators do not make final decisions regarding any type of lender transaction including deed in lieu of foreclosure, mortgage refinance, forbearance agreements or loan modifications. The primary duty of bank loss mitigators is to keep bank losses at a minimum by negotiating the best deal for the bank.
Loss mitigators are responsible for many duties. With the influx of foreclosures, it can take two or more weeks before borrowers receive a phone call from their lender. Instead of allowing further delinquency on loan payments, borrowers must be persistent in making contact with the bank.
If homeowners are unsuccessful in making direct contact with their lender, they should send a certified letter of hardship to the lender. Hardship letters should include the details of financial problems, along with any action taken to correct the problem.
It is important to attach a return receipt request to obtain a signature from the bank representative who received the document. Once the return receipt is received, attach it to the hardship letter and keep for future reference.
Each bank’s short sale protocol is different and the process varies by lender. In addition to the letter of hardship, most banks require financial records such as earned wages and two years of income tax returns, along with a detailed list of income and expenses.
Most banks require homeowners to have a qualified buyer in place before granting real estate short sale approval. Some lenders will give borrowers time to list their home through a Realtor. Lenders will rarely allow borrowers to list the property as for sale by owner.
It can be difficult to locate a real estate agent willing to list shortsale properties because they must reduce their rate of commission to expedite the sale. Realtors must submit additional paperwork and abide by specific guidelines when listing distressed properties. Overall, the process of selling preforeclosure properties can be tedious and typically not profitable for agents.
Negotiating short sales can be intimidating for homeowners unfamiliar with real estate jargon and legal contracts. It is best to work with a real estate lawyer or short sale specialist to ensure proper protocol is followed. While this can be an additional expense, hiring professionals to negotiate and complete paperwork can save money in the long run.
It is imperative to understand the type of short sale offered through the bank. Many lenders issue deficiency judgments which hold homeowners financially responsible for the difference between the loan balance and purchase price. Deficiency judgments remain on credit reports until fully repaid and can prevent borrowers from obtaining any type of credit for years to come.
Some mortgage lenders provide ‘Payment in Full’ agreements and accept the purchase price as payment in full toward the home mortgage loan. Payment in full allows borrowers to walk away from the property without owing additional funds.