Short Sale
Let's start with a definition. A short sale is when a lender agrees to take less than what they are owed for a property.
Why would they do that? To avoid losing more money is the quick and dirty answer. In this recessionary period, a bank is fully aware that proceeding towards a foreclosure is not likely to prompt a property rescue, and the cost of holding the house, plus the legal fees mount with each month the owner is unable to pay their mortgage become an incentive to take a loss.
The process
The homeowner needs to write a letter to their lender(s), giving permission either for the buyer or the buyer's agent to have access to their information in order to negotiate the short sale. The buyer/agent then begins to assemble a short sale package for the bank. These are quite lengthy and the bank will not consider any offers until the package is complete.
It will need to contain:
- An executed Purchase and Sale Agreement for the property with the price the buyer is willing to pay. The Seller, although they sign the Agreement, do not really have anything to do with the price. Theoretically the short sale process could proceed if the buyer wrote a Purchase and Sale for twenty five cents and the Seller approved.
- A letter of hardship, detailing why the owner is unable to meet their commitments to the mortgage.
- A financial statement from the property owner
- Recent legal documents, including mortgage statements, notices of default and notices of Trustee Sale
- Other financial statements relating to employment and previous income tax documents
- A BPO (Broker's Price Opinion) on the market value of the property
- A contractor's estimate of any damage repair
- 3-up Comparable Sales from a realtor or broker
Time Frame
Be prepared as both the buyer and seller, for the process to be lengthy. It can take up to 6 months to approve and process all the paperwork to facilitate the sale.