In today’s economy, it is not so uncommon that a homeowner may have more mortgage debt on his property than the property is worth. If the homeowner is unable to afford the payments and is forced to sell the property, he must negotiate a "short sale" with the mortgage lender. In a "short sale", the lender agrees to accept net proceeds of a sale which are lower than the outstanding loan obligation, and forgive the rest of what is owed on the mortgage. By accepting a short sale, the lender avoids a lengthy and costly foreclosure proceeding, and the homeowner is able to pay off the loan for less than what he owes.
Lenders’ policies differ with respect to accepting "short sales". If you are in a situation where a "short sale" might be an option, before you put your property on the market, you should contact your lender to explore whether they will consider accepting a proposal for a "short sale".
Generally, in order for a lender to agree to a "short sale", the following must pertain:
1. The homeowner must be in or near default under the mortgage.
2. The lender will do an appraisal of the property to verify that the value of the property has fallen below the outstanding loan balance.
3. The lender will request financial information from the owner to support his argument that he cannot afford the payments and does not have sufficient assets to pay off the loan in full. The homeowner must prove that a serious hardship exists, such as loss of employment, illness, death divorce or bankruptcy.
4. If the lender approves the "short sale" based on the appraisal and the homeowner’s financial documentation, the property should be marketed for sale subject to approval of the mortgage lender. The lender must review and approve the terms of the sale and the purchase contract as a condition of closing.
5. As a further condition of approval, the lender will also require the submission of a proposed closing settlement statement. This statement should set out the closing costs to be paid out of sale proceeds and the projected net proceeds which the lender will receive.
"Short sales" are not for the faint of heart. The process can be fraught with peril, beginning with the challenge of even identifying the correct person in the correct department of the lender's operation to whom to submit a request. The paperwork can be substantial, and the lender is likely to move only at its own pace regardless of the time frame to which buyer and seller may have agreed. Nevertheless, for a homeowner in a substantial hardship situation who cannot afford the payments and does not have assets to pay off the loan in full, a "short sale" can be the way out of a very difficult situation.
Lenders’ policies differ with respect to accepting "short sales". If you are in a situation where a "short sale" might be an option, before you put your property on the market, you should contact your lender to explore whether they will consider accepting a proposal for a "short sale".
Generally, in order for a lender to agree to a "short sale", the following must pertain:
1. The homeowner must be in or near default under the mortgage.
2. The lender will do an appraisal of the property to verify that the value of the property has fallen below the outstanding loan balance.
3. The lender will request financial information from the owner to support his argument that he cannot afford the payments and does not have sufficient assets to pay off the loan in full. The homeowner must prove that a serious hardship exists, such as loss of employment, illness, death divorce or bankruptcy.
4. If the lender approves the "short sale" based on the appraisal and the homeowner’s financial documentation, the property should be marketed for sale subject to approval of the mortgage lender. The lender must review and approve the terms of the sale and the purchase contract as a condition of closing.
5. As a further condition of approval, the lender will also require the submission of a proposed closing settlement statement. This statement should set out the closing costs to be paid out of sale proceeds and the projected net proceeds which the lender will receive.
"Short sales" are not for the faint of heart. The process can be fraught with peril, beginning with the challenge of even identifying the correct person in the correct department of the lender's operation to whom to submit a request. The paperwork can be substantial, and the lender is likely to move only at its own pace regardless of the time frame to which buyer and seller may have agreed. Nevertheless, for a homeowner in a substantial hardship situation who cannot afford the payments and does not have assets to pay off the loan in full, a "short sale" can be the way out of a very difficult situation.
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