Short sales homes are houses which are sold below market value to prevent the property from entering into foreclosure. When borrowers fall behind in their mortgage payments and unable to get back on track, banks will sometimes grant short sale approval if the property meets specific criteria.
Short sales homes can also refer to property which has been repossessed by banks. These houses are oftentimes referred to as distressed properties because they require repairs or renovations to return them to livable condition. When property falls into foreclosure and is repossessed by the lender, it becomes known as bank owned or real estate owned (REO) property.
Borrowers cannot sell their house for less than is owed on their mortgage note without first obtaining approval from their lender. Borrowers must undergo a financial audit to provide proof they are financially insolvent and have no option but to short sale the house to satisfy the loan.
In order to obtain short sale approval, borrowers must work with an assigned
loss mitigator. Mitigators are usually employed by the lender, but can also be independent agents who work on behalf of the bank or the borrower. Bank employed loss mitigators work as a mediator between both parties to develop a mutually-beneficial outcome.
Not all mortgage lenders engage in
short sales, nor do all borrowers or properties qualify for short sale approval. Banks will not allow borrowers who have accrued equity in the house or possess assets which could be used to satisfy the loan participate in short sale programs. Short sales are only available to individuals who owe more than the property is worth and do not own assets of significant value.
Financial experts state that less than 20-percent of short sale requests are approved. The primary reasons for denial stem from properties that do not meet criteria and borrowers who fail to file appropriate paperwork or miss filing deadlines.
The first step of obtaining short sale approval requires borrowers to submit a
short sale hardship letter and packet of financial records. The letter of hardship is a crucial element of the process and is often used by loss mitigators to determine if the borrower is eligible for the program. Hardship letters should include a timeline of events which caused the borrower to fall behind, as well as any actions taken to overcome financial challenges.
The short sale packet will include pay stubs, tax returns, bank and credit card statements, list of monthly income and expenses, homeowners' insurance premiums and property tax statements. Some banks require borrowers to either list the property with a realtor or have a buyer in place before granting approval. If so, the lender will also require a copy of the listing agreement or sales contract.
Some mortgage lenders will grant borrowers' time to list their property with a realtor. Banks usually allow two or three months to locate a buyer; otherwise they will commence with
foreclosure proceedings.
One little known source for locating a buyer to purchase short sales homes is
real estate investors. Investors are attracted to distressed properties because they are sold below market value. Real estate investors who participate in rehabbing properties are particularly interested in short sales homes that require repairs and renovations.
Borrowers should take time to research all aspects of short sales. It is recommended to consult with a real estate lawyer or short sale specialist to discuss the various scenarios, pros and cons of this type of real estate transaction. The more borrowers know about short selling, the better prepared they will be to overcome any challenges that arise.
Simon Volkov is a real estate investor and short sale specialist who works with homeowners facing foreclosure. Simon has participated in hundreds of successful short sales homes transactions across the U.S. Simon is also the author of "
Short Sale Hardship Letter eBook Course"; a step-by-step guide for working with loss mitigators to obtain short sale approval. Learn more about short sales by visiting
www.SimonVolkov.com.
