Short Sales and Distressed Properties
A sale of a home in which the proceeds fall short of what the owner still owes on the mortgage is called a Short Sale. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting the short sale, the lender and seller can avoid a lengthy and costly foreclosure, especially in a declining market. The seller is able to pay off the loan for less than what is owed.
The short sale could be one of the best solutions for resolving your financial dilemma. If the home that is eligible is your primary residence, you will not get taxed on the difference.
Seller Must Qualify
In essence the seller is asking for debt forgiveness to satisfy the mortgage. The listing agent can help with submitting all the paperwork that is required from the bank, this will be the complete short sale package.
Examples of Hardship
- Military Service
Documentation Required from Seller
- Financial Statement
- Hardship Letter
- Last 2 months bank statements
- Prior 2 years tax returns
Short Sale Pricing
After an offer is made, banks will often request an appraisal, and may also order a Broker’s Price Opinion (BPO). When the short sale package is submitted to the bank, the listing agent will also include a Comparative Market Analysis (CMA). This will show the current sales activity on other homes that are comparable to the selling home.
When submitting an offer to the bank, the terms of the contract can play a significant role of whether the offer is approved or rejected by the bank. Buyers should submit a pre-approval letter from their lender with the offer. If it is a cash offer the bank may be willing to accept a lower offer since there is not a mortgage contingency clause with the offer. If the bank does not agree to the sales amount the bank will reject the offer. The seller can then counter the offer and resubmit the offer if the buyer agrees to the new terms of the offer.
Buying/Selling a Short Sale
If you are considering purchasing or selling a short sale, there could be benefits and drawbacks. Please contact Duncan Real Estate to help you with the process.