A short sale is a solution for the homeowner who can no longer pay his mortgage payments and who wants to keep his credit and financial record clear. Not all banks will consider a short sale, but to get what is owed to them, many will. The sad thing about short selling your home, is that you will no longer be a homeowner. The requirements for short selling is easy; you should get your purchase agreement, a hardship letter, your bank statement, your W-2 and your financial statement to get the ball rolling.
The first thing to do, is to get confirmation of the property value. You do this by having a real estate agent perform a Comparative Market Analyses. Now you add up all the costs such as broker fees and commissions and all other costs to sell the property, including any legal fees. Then you add up all loans against the property. Keep in mind that you will have to pay what is owed on the loan. Now subtract the loan amount from the expected earnings of the sale. The lender will have to decide if it is worthwhile to go ahead with the short sale.
If you have included into your calculations the consultation of a lawyer and an accountant, this is where you get them into the picture for assistance, counseling and guidance.
The next step would be to find a suitable buyer for the property. This buyer will either pay cash, which would make the lender extremely happy, or they might have to register a mortgage of their own, using the proceeds to pay the lender. They will then be liable for payments on the new mortgage themselves.
The seller must prove that they are incapable of paying off the entire loan or that they are incapable of keeping up with the current payments month to month. The lender will do a mortgage application on the seller, to determine that the homeowner is really incapable of the payments. Beware of this process, if the lender finds that the homeowner’s financial difficulties started before the first mortgage, the homeowner may face a case of fraud. If your home has a second mortgage already, the lender will not agree to short selling as the lender in the second mortgage will stand a chance of forfeiting on his investment.
You can now sell your property. The contract will have to be open for the lender to see that the seller does not make any money out of this transaction by putting any extra money in their pocket.
There are benefits in short selling for the lender, such as not to deal with the unpleasantness of a foreclosure and eviction of the homeowner, no attorney fees or costs in the reselling of the property. The banks get their money, even if it is less (they do not get the full interest on the agreement), they get their money immediately upon the sale.
There is also a benefit for the buyer, who will get the property at a reduced price.
There is a small benefit for the seller. The seller walks away from the deal without having to face bankruptcy or to undergo the foreclosure process. Keeping your good credit record might be better for some than being a default homeowner.