Obtaining short sale approval is a lengthy and complex process which must be orchestrated through your bank’s loss mitigation department. When banks approve short sale offers they agree to accept less than is owed on the mortgage note.
In today’s economic recession obtaining short sale approval is no easy feat. Not only will you need to meet certain eligibility requirements, you must also present a strong case as to why you cannot afford your mortgage and why the bank should buy your home for less than is owed.
Short sale eligibility requirements include:
1) The ability to prove your home is worth less than is owed on the mortgage note. With today’s falling home prices, this requirement is relatively easy to meet; particularly if you obtained a mortgage within the past five years. Home values can be obtained by researching comparable home sales reports on houses recently sold in the area where your home is located. Comp reports can be obtained through realtors and via the Internet. One good source is www.Homes.com.
2) You must be at least three months delinquent on your mortgage payments.
3) You do not have any accrued equity in your home.
4) Financial hardships must stem from unexpected or extended unemployment, chronic health problems, divorce, death of a spouse, or other extenuating circumstances. If you fell behind on your mortgage loan because you took an exotic vacation or engaged in frivolous spending, chances are the bank will reject your short sale application.
5) You have no financial assets or ability to borrow funds to cure arrears on your mortgage note.
Most mortgage lenders offer borrowers a variety of options to save their home from foreclosure before entering into a short sale agreement. One of the most common options is a loan modification, where lenders roll over delinquent payments to the end of the mortgage note or temporarily reduce or suspend payments for a specific period of time.
Oftentimes, loan modifications contribute additional financial challenges for home buyers. Although mortgage payments are reduced or suspended for a few months, when payments are reinstated borrowers usually end up with a higher payment than when they started. Unless their financial situation has drastically improved, loan modifications can potentially force the homeowner into bankruptcy.
If you meet the short sale eligibility requirements and cannot qualify for a loan modification, your lender will require you to submit a short sale package. Prior to receiving short sale approval, certain elements must be in place.
Oftentimes, lenders require borrowers to have a buyer lined up to purchase the home at the reduced price. In most cases, you will need to work with a realtor or private investor qualified to conduct short sale transactions.
Although requirements vary from lender to lender, most short sale packages require the following:
* Financial statement detailing income and expenses
* Short sale hardship letter explaining events which caused you to become delinquent
* Current banking and investment statements
* Current tax return
* Realtor listing agreement
* Signed sales contract
* Estimate settlement statement (HUD-1)
* Proof of buyer’s financing
Chances are you will have numerous conversations with the bank loss mitigator assigned to your case. It is imperative to be truthful when submitting information and financial records. It is crucial to remain calm and be respectful to the loss mitigator. Screaming, yelling, cursing or fabricating lies will not help you at all and could potentially cause you to lose your opportunity to obtain short sale approval.
Engaging in real estate short sales is less damaging to your credit and less traumatic to your emotions than foreclosure. However, realize short sale approval means you have to sell your home and locate suitable accommodations.
Before requesting short sale approval from your lender, take time to become educated about the process and how it works. Enlist the help of individuals who are well-versed in short sale transactions such as realtors, real estate lawyers and private real estate investors.