All About Short Sales
What are the benefits of a short sale?
Are you and your family facing threats of losing your home? Are creditors harassing you to give them money that you simply do not have? If you are facing threats of foreclosure, there could be alternatives available to you. One of these alternatives which is on the rise in St. Petersburg and the rest of Florida, is a short sale. Both banks and debtors have chosen this route as it can save time, hassle, and money in the long run. By definition, a short sale is the sale of a property for less than what is owed on it. The lender agrees to accept this lesser amount and releases the individual from their debt. Banks often choose this alternative as it eliminates their responsibility of maintaining the home and selling it as they would in a foreclosure situation.
The process of foreclosure can prove to be time-consuming and expensive for everyone involved. Short sale offers debtors a clean slate and an opportunity to quickly get out of the trap of debt. In Florida, a recent report showed that short sales are on the rise. In fact, 2012 has already been called the "Year of the Short Sale" by real estate experts. They expect to see it increase due to the fact that lenders will be pushing to get rid of distressed assets (properties that are not expected to be paid for). Up to 90% of homes being sold are short sales and the number may continue growing. In some cases, the creditor does not require the debtor to pay the difference between the loan and the amount the property sold for. However, in other cases, the unpaid balance (called the deficiency) is required. It is important to determine the terms of your short sale so that you are not caught off guard by the fine print.
What is a short sale?
A short sale is a real estate procedure where a property is sold at a price that is insufficient to pay back the loan(s) secured against it. It can also refer to any other liens against the property, such as delinquent property taxes, or homeowners/condominium association fees etc, as well as the sales closing costs. With a short sale, in order for you the seller to complete the sale you must do the following: 1) come to the closing with cash from other sources to cover the shortfalls or, 2) your lender(s) must forgive all or a portion of the amount you are short, or you must make other arrangements for repayments. Such examples would be the execution of a promissory note. The second alternative is commonly known as a short sale, and in these types of cases, the lender typically will not allow the seller to receive any proceeds or other monetary benefit from the short sale.
What other options may be available than a short sale?
Depending on your personal financial condition and the facts surrounding your case such as any existing liens against the property, and the current available interest rates, you may be able to negotiate a loan modification to your loan(s), refinance, deed the property back to the lender(s) in lieu of foreclosure, or declare bankruptcy instead of attempting a short sale. You may also be eligible for a government assisted refinancing option such as FHASecure (for more information call 1-800-225-5342 or visit www.hud.gov. There may be other viable options available to you dependent upon your individual circumstances. It's a wise idea to consult with legal, tax, credit or financial advisors in order to help you evaluate your options are more optimal for your individual set of circumstances.
What is the process for getting a short sale approved?
There is no universal set of rules or regulations when it comes to being approved for a short sale. It all depends upon your individual set of circumstances and whether or not your lender will approve a short sale on your property. Each lending institution is different and each has established their own criteria, which may or may not work in your favor. Some lenders are not willing to communicate with anyone but you about the possibility of a short sale, whereas others may not entertain the possibility of a short sale unless you are in default, or until a contract offer is presented. In a short sale, the basic steps are as follows:
- Proving Financial Hardship: Most people have to prove to their lender(s) that they are experiencing financial hardship and are unable to continue making their loan payments. In some cases (but not all), you may already be in default of your loan. The majority of lenders require that you provide specific information such as a financial affidavit, tax returns, bank statements, and pay stubs that prove that you are having financial hardship.
- Determine Property Value: Once you have proven to the bank(s) your financial hardship, you must then show that the property is worth less than the total amount owed to the lender and any other lien holders. In many cases, the lender will require a Broker's Price Opinion (BPO) or Comparative Market Analysis (CMA) from a Realtor. The lender may also order an appraisal on the property from a licensed appraiser of their choosing. In some cases, you may also be responsible for paying for the appraisal.
- Finding a Buyer: You must find a qualified buyer who will submit an offer to purchase your property, which will then be submitted to the lender for approval. Each lender who has a mortgage or lien on the property must approve of the purchase to the extent that their loans will not be paid in full at closing. Unfortunately, there are a number of lenders who are unwilling to consider a short sale, review the property's value, or even evaluate your financial hardship until they receive a bone fide offer to purchase the property.
- Final Approval: Once your lender has finally acknowledged your inability to continue satisfying your payments and the fact that the property is worth less than the loan(s) secured by the property, then you or your representative must convince the decision makers at each lender that a short sale is in their best interests. The majority of lenders have a specific department that handles these types of requests. These departments are commonly called Loss Mitigation, Pre-Foreclosure, or Loan Workout departments.
How will I know if my lender has approved a short sale?
Your short sale will most likely be subjected to several different levels of approval by your lender. There may be different parts of the process where your lender tells you (or your representative) that the lender believes that your request for a short sale will be approved. However, it's important not to assume that a short sale has received final approval until you have received written confirmation from your lender stating the approval and all of the specific terms for the compromise. Keep in mind that your lender has the power to withdraw the approval at a future date. If your short sale is approved, you should immediately inform your realtor and the approval should be given to the settlement agent so they can prepare the necessary documents for the closing of the transaction.
How long will it take to get a short sale approved?
Each short sale situation is unique in itself and no two are identical. How long it takes for an approval will depend upon your individual set of circumstances, the nature of the loan(s), any other liens against the property, and your lender's criteria and staffing. If your lender is willing to consider a short sale before an offer is submitted for purchase, then the process may take less time because you can provide your lender all the required documentation ahead of time, and the lender can order the appraisal earlier. Even if your lender is unwilling to consider a short sale without an offer, you should make sure that you have all of your financial information (mortgage documents, bank statements, pay stubs, tax returns etc.) organized and readily available in order to avoid any unnecessary delays. In today's current market where short sale requests are of high volume, your lender may not be able to respond to your request as efficiently as you would like. Although some lenders are able to review requests faster than others, some lenders can take at least 3 to 4 weeks, if not longer. Keep in mind that there is no assurance that your lender will approve your short sale request; therefore, you should consider all of your available options in the event that your request is denied.
In order that your rights are protected in the short sale process, it is important that you have a strong legal advocate on your side. A lawyer from our team could walk with you every step of the way so that the process goes smoothly and in your favor. Leavengood & Nash, P.A. has been serving families across Florida since 1972 and has been named as Super Lawyers for our work ethic and legal skill. We understand that good people often find themselves in difficult situations and so our main goal is to help them through this time. Please do not wait to get the help you and your family need.