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How Do I Do a Short Sale on My Home?:Review of Short Sales - They say the economy is inching toward recovery, but millions of homeowners who face foreclosure aren't feeling any better than they did in 2008. The housing market is predicted to improve in 2011, and record-low mortgage interest rates are climbing. While both of these indicate recovery, millions of homes are still either in foreclosure or only a step or two away. In cases like this, the bank and the homeowner may agree to do a short sale. What is a short sale? Unfortunately, the "short" in short sale doesn't refer to the duration of the sale, but rather that the home will sell for less than the homeowner owes. Is a short sale right for you? Would it be better in the long-term to simply go through foreclosure? What are the pros and cons? This guide will take a look at how a short sale works so you can decide if it will work for you.
How to Do a Short Sale on Your Home:The best thing to do when you find yourself unable to pay your mortgage is to immediately speak to your lender. This is probably the very last phone call you want to make, but it may be beneficial. Because of the massive numbers of foreclosures, many lenders are more amenable to working out an alternative. The best time to contact them is when you're having trouble but before you miss a payment. If it's too late for that and you're at the point where a short sale is your best option, contact your bank. They usually have a "loss mitigation" department. You want to talk to someone who is authorized to make decisions, such as a manager or supervisor. Get their name and number and contact them directly. Remember, a lender doesn't have to agree to a short sale. They can decide to go through with foreclosure (http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure), but typically, they will try to recoup as much of their money as possible, and a short sale is the way to do this. They are not doing it because it's best for you; they're doing it because it's best for them, and if it works out for you too, that's fine. After you've made contact with the bank, start gathering documents. You'll need your tax returns for the past 2 years, pay stubs, bank statements, documentation of retirement funds and other accounts, as well as other financial information. You will also have to provide the bank with a hardship letter. This is a letter explaining why you cannot afford your home. This should be about a paragraph (certainly no more than a page) in which you describe your financial inability to pay. Banks aren't going to agree to a short sale if you've got millions in a retirement account you could draw on; instead, they are much more willing to agree when paying the mortgage is simply impossible. You can find sample hardship letters for short sales online. You will have to list the property, and these aren't foreclosure sales or "fire" sales. You aren't selling your home for far below market value. You may be selling it for more than it's worth, that that doesn't mean you're giving it away. It is to your advantage if you get the best offer. When an offer comes in, the bank must approve. At this point, it is helpful to remind yourself that the short sale definition doesn't mean that it is a short process. After an offer is made, the bank goes through a valuations process. During this time, which can take from 1 to 2 months, they are having the house appraised and determining market value so they can determine what the property is worth now. After this period, the offer will either be accepted or rejected. If the offer is fair, even if below what you owe, the bank is likely to accept it. If it is too far below market value, it may be rejected. If rejected, the process starts again as you look for new offers. If it is accepted, though, you'll be asked for current financials and looks again at the buyer's credit approval. If everything is in order, the short sale proceeds. After the bank approves the offer, the closing will occur within 30 days. After the bank's approval, the sale typically follows that procedures that would occur during a regular closing. No one wants to complete a short sale on their home. It would be far preferable to you, and even to the bank, if you paid your mortgage each month. But this is not the reality that millions of people are faced with today. A short sale is not ideal, and there are consequences to your finances and credit score, but it is better than foreclosure, and it is something from which you can recover. You can repair your credit, and you can even own a home again. Short sales are not to be undertaken lightly, but they may be the best solution for you.
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