In a short sale, you sell your home for less than you owe.
There are several reasons why a Homeowner will benefit from a short sale. The most important one being getting the lender to forgive any remaining debt. This can get especially tricky if there is a second mortgage, but it’s not impossible to wipe out deficiencies on both first and second mortgages. While it would seem to be common sense for a lender to accept a short sale rather than allowing a home to go into foreclosure, where losses could be even greater, it’s not always easy to convince a lender—or lenders—to agree.
There is a government-initiated short sale program Home Affordable Foreclosure Alternative (HAFA). I have worked with many clients in Massachusetts after the real estate market took a nose dive. HAFA is making a real difference and is beneficial for those who qualify. If all parties agree, the (remaining) debt will be forgiven and the seller will walk away with $3000 at closing. For those who don’t qualify for HAFA, lenders may still be willing to negotiate a short sale, but it could leave the seller on the hook for a deficiency.
Overall, it is getting easier to get a short sale approved and closed. Many servicing Banks have invested in partnerships with vendors who can assist with processing short sale packages electronically which has improved the pace of short sales and the chances the homeowner’s documents will not go missing. In other banks, the short sales have become easier because of the hiring of much-needed staff to man the phones, review the borrower’s documents, and analyze the files. Some banks are still adjusting to the overwhelming number of HAFA applications.
Short Sales are definitely not a Do It Yourself Adventure. Short sales involve extensive documentation, and the borrower must be able to document a hardship. All that paperwork can be to the detriment of the homeowner who wants to get out of a bad situation. “Typically a short sale won’t be approved if you have a retirement plan that could be drained, or the income to support the payments on the mortgage,” warns John Maddux, CEO of Youcanwalkaway.com . The paperwork involved in a short sale should also be reviewed by an Attorney familiar with the process..
Making sure the prospective Buyer is committed to the purchase and willing to wait the extra time it takes for approval is a MUST. Most Short Sales are sold “AS IS” and Buyers should be encouraged to conduct inspections before signing the Purchase contract. The worst possible scenario is that the homeowner hires professionals, completes all of the paperwork the bank requires, obtains the short sale approval, and then the buyer walks away with the homeowner getting nothing for their efforts and time the property is taken off the market.