The Basics of Short Sales
There is always confusion when it comes to short sales. There are misunderstandings about how it affects the sellers credit, how long it takes both for the seller and the buyer, and why it is even necessary to short sell a property. This is a basic break down of what a short sale is:
Why would an owner consider short selling a property?
The biggest reason is that they have a financial hardship and cannot afford to stay in their home. At this point, their goal should be to avoid foreclosure which can more severely affect their credit.
Another big reason an owner would consider a short sale is because the market has changed drastically and they may owe more on their mortgage then their home is worth. This is basically putting money into a pocket with a hole in it. It seems worthless to pour money into a mortgage when you are not gaining any equity. Although it is trickier to put your home up for a short sale if you can still afford your mortgage but are not willing to pay to an empty equity, it can be done with some extra creativity.
Under what circumstances will a bank accept a short sale?
Banks will more than likely accept a short sale if the seller has a financial hardship and owes more on the mortgage than the home is worth. The bank will need proof of hardship whether is a job loss or change, divorce, a medical emergency, death or bankruptcy.
Sometimes a bank will accept a strategic short sale which is when an owner can still afford the payments but the value is under what is owed. In these cases, it is still required to have a hardship letter explaining why you need to get out. You may have to put a lot of thought into this letter and get creative. Be sure to involve a real estate agent with experience in this area.
What paper work will I need for the Short Sale process?
About.com has a good list of the typical paperwork needed from the seller before a short sale can be completed:
- Letter of authorization, which lets your agent speak to the bank.
- HUD-1 or preliminary net sheet
- Completed financial statement
- Seller’s hardship letter
- 2 years of tax returns
- 2 years of W-2s
- Recent payroll stubs
- Last 2 months of bank statements
- Comparative market analysis or list of recent comparable sale
You will need to work with your realtor to get some of these items, such as the comparative market analysis.
How long will a short sale take?
Despite the name, short sales are not quick. A Short Sale can typically take 3-9 months to complete. Some even take over a year. This may seem too long to wait but the process can be well worth it if it helps you avoid foreclosure.
Why does a short sale take so long?
The reason a short sale takes so long is because you are basically asking the bank to lose money. They have a process, as annoying as it is to wait for, they will be sure to dot all their i’s before they grant a short sale. The process can be even more tedious if there are any issues with the buyer’s funding or offer. Your bank has to approve all aspects of the short sale including the offer, home inspection, buyer, appraisal and more.
If you still have questions about short selling your home or buying a short sale in Northern Virginia, please reach out to us. We would be happy to answer your questions and help you start the process.
