Extenuating circumstances delegate whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.

In short; A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions.

In the United States the number of short sales being accepted by lenders rapidly grew during 2007 and it expected to reach record levels in 2008.

Short sales are not easy by no means. You must be diligent in the process. Below are the basics of selling your home through a short sale.

The most important thing when considering a short sale is working with a Realtor that has experience with working ALL phases of a short sale. If you are heading towards a foreclosure now is not the time to hire an agent that is unfamiliar with the process. Most of the time a short sale involves working with the mortgage company that is holding the second mortgage. We have experienced agents that work all phases of short sales weekly.

• Call the Lender
  You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision. You can give them permission to speak to your agent. Our agents have lots of experience in negotiating with the short sale departments.

• Submit Letter of Authorization
  Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
  
  
  • Property Address
  • Loan Reference Number
  • Your Name
  • The Date
  • Your Agent's Name & Contact Information

• Preliminary Net Sheet
  This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.

• Hardship Letter
  The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.

• Proof of Income and Assets
  It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.

• Copies of Bank Statements
  If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.

• Comparative Market Analysis
  Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Our agents can prepare a CMA for you, which will show prices of similar homes:
  
  
  • Active on the market
  • Pending sales
    
  • Solds from the past six months.

• Purchase Agreement &  Listing Agreement. When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home warranties or termite inspections.

Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.

This is just a guideline to prepare you for a possible short sale whether your home or if you are an investor looking to buy a short sale property. No two short sales are the same and the length of the transaction can vary. We have a qualified team of Brokers that will assist you every step of the way. If you would like more information on selling or buying through a short sale please feel free to contact us for a confidential consultation  on the process.

Steve Armentrout

RE/MAX Coastal Realty
Camden NC, 27921
252-202-5605
stevearmentrout@remax.net