The Basics You Need to Know About Short Sales
Posted Monday, April 15, 2013
Short sales are used by homeowners to prevent losing their homes to foreclosure. When you see an advertisement for a short sale, the home is in pre-foreclosure.
What is a short sale? It is an agreement between the sellers of a home in the beginning stages of foreclosure and their lender which allows the home to be sold for less than the existing loan balance. If an agreement is reached by all parties, a short sale could save the sellers’ credit by avoiding a foreclosure.
A short sale is not a short process, however. It is a lengthy process with many legal and financial aspects.
The basic short sale process flows as follows:
- The seller contacts the lender to discuss the possibility of a short sale.
- The seller issues a letter authorizing release of the loan and property information to the buyer or escrow agency.
- A settlement statement is reviewed by the lender. The statement includes the proposed selling price, the amount left to be repaid and itemized expenses.
- The seller completes a hardship letter for short sale, including a description of all the financial difficulties the seller is going through. The lender validates and confirms all financial difficulties.
- The seller provides the financial documents including paycheck stubs, bank statements, a personal financial statement, monthly budget assessment and anything else required by the lender.
- Once approved, the buyer can proceed with the purchase.
What are the benefits of a short sale? The seller is relieved of the debt they cannot afford, a foreclosure proceeding by the lender is avoided and the buyer purchases the home at a discounted price.
Letter authorizing release