Short Sale 101
Posted Monday, September 23, 2013
Today’s economy has been rough on most everyone’s pocketbooks, and when it comes to prioritizing payments, mortgage payments can take a hit. If you find yourself in a bind, owing more than your real estate is worth and you can’t afford your current mortgage, then you might want to consider talking to your real estate agent and bank about the possibility of a short sale.
To help you prepare for those conversations, here are the basics about short sales:
- What is a short sale? A short sale is an agreement that your real estate agent negotiates between you and your bank to sell your home for less than you still owe. The bank absorbs the loss so that the seller doesn’t have to repay the balance of the mortgage.
- Why would you do this? Your home is now worth less than you owe, which is called being underwater, and you have a financial hardship. There are a number of things that could put you in financial hardship and have you considering a short sale — such as unemployment, job transfer, illness, underemployment or divorce.
- How does it work? A real estate agent lists your home at its current market value. Then a buyer places an offer that is usually much less than the amount required to pay off the loan. The seller or agent (if the seller has given written permission for the agent to do so) takes the short sale purchase agreement to the bank holding the mortgage in hopes that they’ll accept it.
- What do you need? Basic guidelines usually include a hardship letter about why you need a short sale, bank statements for the last three months, two years of tax returns and permission for your real estate agent to negotiate short sale terms with your bank.
- How should you proceed? Most accountants agree that a short sale is better for your credit score than a foreclosure. Talk to your agent and have him or her refer you to an accountant who can evaluate your situation and help you take the steps necessary to secure a good financial future.
There’s a lot more to short sales than I’ve outlined here, but this gives you a starting point.
If you’re finding it difficult to meet your monthly mortgage payments and still owe more than your home is worth, then you might want to consider a short sale for your real estate. It can decrease your debt and release you from that monthly financial burden.