People fall behind on their mortgage payments for any number of reasons: lost jobs, health issues, family problems or other financial hardships. If a homeowner’s house is worth less than the mortgage balance, the problem is even worse — and this scenario has been sadly common in the years following the housing market collapse.
To avoid foreclosures, homeowners can instead turn to a short sale.
What is a short sale?
It works like any other arrangement to sell your home through a real estate broker, but with two exceptions:
1. The offer to purchase the home will be less than the outstanding balance on your mortgage.
2. The mortgage lender must approve the deal.
Lenders have a strong motivation to accept reasonable offers because short sales cost less than foreclosing on a borrower. Banks prefer not to take possession of homes if they can help it, because when they take title to the home they have to pay for maintenance and other expenses, as well as keep a non-performing asset on their books.
Benefits to struggling homeowners
To qualify for a short sale, the seller must be behind on the mortgage payments, provide proof of financial hardship and have minimal or no equity in the home. Unlike a foreclosure, a short sale allows you to take control of your circumstances and be involved in the process from start to finish.
It provides you more time than a foreclosure and is less stressful. It offers homeowners other advantages as well:
- Relief from the financial burdens of an upside-down mortgage.
- Less damage to your credit score — by contrast, if your property goes into foreclosure the mark remains on your credit profile for at least seven years.
- The ability to qualify for a new mortgage in two to three years.
The Atlanta short-sale process
If you go into a short sale, you won’t lack for interested buyers. But you need to be patient; these deals can be very convoluted because of all the parties involved in the financing of a home, including the mortgage company, loan investor, lien holders and insurance company. The process can last from 60 days to six months.
Once you list the home, anticipate it going under contract within the first 30 days. However, it is not uncommon to go through several buyers before obtaining “final approval” from your lender.
While you are waiting for a buyer, your broker will help you prepare a package that includes the following items: Letter of Authorization, Hardship Letter, two years of tax returns, pay stubs, bank statements and a monthly budget. Each party with an interest in the property must receive a copy of the listing paperwork and other information.
A short sale is unlike the average real estate transaction because deals can quickly unravel, even when they are handled properly. In most cases, a short sale costs the seller nothing or very little in real estate fees and commissions, as those costs are normally paid for by the lender. Work with a broker who specializes in short sales to send only a clean offer from a ready, willing and able buyer to the lender on your behalf, reduce delays by expertly presenting the hardship package to and having an attorney help facilitate approval of the lender, at no cost to you, and increase the probability that you successfully sell your home and get out from underneath the debt.
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