Veteran Kyrene Corridor Realtor Carol Royse specializes in assisting homeowners with questions about short sales and how they work. Here in a Q&A format is Royse’s primer on when short sale should be considered and what are the steps involved.
Question: What is a short sale?
Answer: A short sale is a technique to help homeowners avoid foreclosure on their home. It is an arrangement between the homeowner and the mortgage company in which the mortgage company agrees to accept less than the amount owed on the home.
With unemployment or under-employment, many homeowners cannot make their house payments. Divorce, job transfer and illness contribute to owners not being able to pay back or afford their mortgage payments. In some cases people who find themselves under financial hardship choose a short sale to help stabilize their financial situation.
One of the great things about a short sale, from the outside looking in, is that it appears to be a regular sale. A normal for sale sign, not a foreclosure or bank owned sign, is placed in the front yard. If you are living in the home at the time the short sale is initiated, you can usually remain in the home through the negotiations and closing.
You move out of the home and the buyer moves in after the deed records. The closing costs and real estate commissions are paid by the lender who holds your mortgage. The homeowner pays nothing.
Q: How does it work?
A: Here are the steps to begin a short sale: The real estate agent does a market survey of what homes in the neighborhood are selling for. The home is priced at market value regardless of the amount of the mortgage on the home. The home is listed for sale and a buyer submits an offer on the property, which is usually many thousands of dollars less than what would be required to pay off the loan.
In this process, the seller would sign the purchase contract accepting the price; the offer would then be presented to the bank. The bank would review the offer and make a determination to accept the offer, counter it or deny the short sale. In most cases through negotiation, the banks will accept the short sale.
Q: What information or documentation does my lender need from me?
A: You will need to fill out a so-called Short Sale Package, which will include but is not limited to a hardship letter outlining why you are requesting a short sale; three months of bank statements; and two years of tax returns, plus an authorization letter giving your Realtor permission to talk to your lender and negotiate the sale.
Q: If I am considering a short sale what should I do next?
A: It is always advised you seek legal advice from an attorney and a CPA. You will want to know how the short sale may impact your tax return and get any questions on deficiency issues with the short sale, if applicable, and what that could mean for you.
Your Realtor usually can provide referrals if you do not know of an attorney or CPA. Most financial experts agree a short sale is much better than a foreclosure on your credit report. It may lessen the time you will need from the short sale to being able to purchase another home. Many lenders will pay relocation fees to homeowners, if they qualify, to do a short sale over a foreclosure.
A short sale is a good way to decrease debt and get out from the burden of a mortgage that cannot be maintained month after month.
It is extremely important to work with a Realtor who is trained in the short sale process. It is time consuming and a great deal of negotiation goes on between the Realtor and the bank on behalf of the homeowner. It takes time and skill to close a short sale transaction from beginning to end.
Contact Royse at 480-776-5231 for information.