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A short sale in real estate is a process whereby a lender agrees to accept a payoff on a loan for less than the balance that is owed on that loan. To put it another way, it is the sale of a property in which the sale proceeds are less than the balance owed on the property's loan. The loan would come up "short".
When a borrower can't pay the mortgage loan on their property, and the lender decides that selling the property at a slight loss is better than going after the current borrower, and both parties agree to the short sale process. It means the lender is accepting an amount on the loan that is less than the total amount due.
What is the Short Sale Process?
In order to successfully perform a short sale, we have more success when the process is started early, when a homeowner is in danger of missing mortgage payments. Because there is so much to do in a Short Sale, time is often the enemy.
The entire short sale process can take anywhere from a couple of months to a year or more, depending on the bank(s) involved. You will want to work with a qualified REALTOR® that has a track record of successful short sales, and knows what's involved when negotiating with the bank's Loss Mitigation Department.
There needs to be some kind of hardship in your life. You may have been notified by the bank that the home is entering the foreclosure process. You will need to prove to the Lender that the state of your finances is not healthy, and why you are now having difficulty making your mortgage payment. Always contact your lender first, one you realize that your financial situation is in despair.
A package of documentation, as required by the respective Lender, will need to be assembled. Although similar, each bank has their own respective requirements. We are also finding that banks will sometimes not even negotiate with us until we are able to provide a Contract to Purchase Real Estate in addition to the documentation package. This means that we need to have a Buyer or Investor under contract that is ready, willing, and able to purchase the property.
If the Lender approves the Short Sale (and be aware that this process has taken place over several months, with constant contact between our team and the bank), then the sale of the home is performed just like any other real estate transaction.
The Lender will pay commissions and most of the fees from the transaction. You, the homeowner, will not have to pay these. There may be other fees (e.g. HOA dues) that will be the responsibility of the homeowner.
Before you doing anything, read this report
So why would a lender be willing to accept a Short Sale?
Many lenders will agree to a short sale because they receive more of the loan's balance through a short sale than they would make from selling the property on their own (after taking possession) or by going through the entire foreclosure process.
A short sale benefits the lender because it lets them avoid a foreclosure, which involves hefty fees for the bank.
A borrower benefits from a short sale because it avoids poorer credit report outcomes.
This, at a very high level is a short sale. We have not discussed all of the work and paperwork that transpire between the lender, the borrower, the real estate agent brokering the transaction and the buyer interested in purchasing the property.
Although a short sale in real estate is not always a pleasant transaction, it can sometimes help a homeowner to avoid a foreclosure.
As a Homeowner, Know Who You're Dealing With
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the borrower and strips an owner of dignity is one of the hardest. For owners who can no longer afford to make mortgage payments each month, there are other choices to bankruptcy or foreclosure. One of those options is called a "short sale".
Be wary of anyone claiming claiming that they can stop the foreclosure no matter what you owe. There are a lot of firms claiming that "We can stop foreclosure!". A major warning sign is any company that requires you to pay upfront for their services, tells you NOT to contact your lender, or requires you to turn over the property deed to them.
Remember that when you let our team at Denver Home Resource represent you in the short sale negotiation with the bank, you are represented by Licensed Colorado Real Estate Agents that are accountable the Colorado's Department of Regulatory Agencies' Division of Real Estate.
Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose, or if the Short Sale is improperly negotiated. Also, not all sellers nor all properties qualify for short sales.
A Short Sale is too important to trust to just anyone. It is more complicated than any "traditional" real estate transaction. If the agent does not have the systems, knowledge, and ability and the Short Sale is not successful, than a Foreclosure is next.
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