Sep 15, 2012
Short Sales have become very common in the last few years. They are not a fad or an enjoyable process, but rather a necessity for many sellers and banks alike. A short sale is not exactly a problem solution for either sellers or banks, rather it is a way to close the books on a bad situation and move on to hopefully better things.
What exactly is a short sale? Well, it is a term which describes what happens to the bank during the process. The bank receives an amount short of what is owed on the mortgage. The bank gives the seller permission to sell the property for an amount less than the seller owes the bank. The bank is not happy to give such permission; and the seller has to meet certain criteria to qualify for the short sale and for the bank to agree.
The property in question must be in an “up-side down” situation. The property must be worth less than the unpaid balance on the mortgage. This is not simply based on the seller’s word. Comparable sales must be substantiated, and the best way to do that is to have a broker or agent put the numbers together. In some cases the bank may demand an appraisal or have their own agent or appraiser chime in on the value.
The payments on the mortgage must be in default. You may hear that being near default is good enough, possible but rarely good enough for the bank. The bank wants their money; and if the seller is not already behind, the bank is not usually pressed to fold their hand.
The seller must also provide the bank with a hardship letter. A hardship letter contains the reason for the default and the likelihood that the seller will not be able to catch up and it is better for the bank to agree to the short sale. Issues to be discussed in the hardship letter include unemployment and the difficulty of obtaining work any time soon, unexpected events like medical emergencies and death of a spouse, and divorce and thus a loss of a financial contributor to the monthly payments.
Bankruptcy is another hardship and that can actually stop the foreclosure process. When bankruptcy is involved the short sale is usually not pursued by the seller since they have a place to stay in the meantime without any interruption from the bank.
If the seller has assets such as savings accounts, other real estate, boats, stocks, bonds, IRA accounts, or anything of significance which can be labeled an asset the bank will likely not grant the short sale. In the event the seller has some assets, and the bank does grant the short sale, the bank may stipulate that the seller must pay back a certain amount beyond the short sale price of the house.
The bank will likely ask for tax returns, bank statements and other financial statements to verify everything the seller writes in the hardship letter about the finances and assets.
Short sales are available and, whether one is granted, will depend and vary from one bank and seller to the next. The parameters listed above are necessary for every seller who may seek a short sale.
Once a seller is found who is permitted to conduct a short sale the buyer will have his/her own hoops to jump through before reaching a settlement price with the bank. Some banks are a nightmare and will make you wish they foreclosed on the property. Some banks really do not care about their clients, but that is a topic for another article.
The best way to make money in any environment is to follow the CARDINAL RULE and make your money work for you.
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By: Louis Monsour
