Facing a Short Sale?
While it is a stressful decision for many families, a short sale may be the best solution, short of foreclosure, for homeowners who owe more on their properties than they are worth. Technically, a homeowner is ‘short’ when the outstanding loan is more than the current market value of the property. A short sale occurs when the homeowner finds a wiling buyer and then negotiates with the lender to accept less than the full balance of the loan at closing (typically to avoid foreclosure). Once the buyer closes on the property, the property is considered ‘sold short’ of the total value of the loan. The procedure requires stamina but it can yield favourable results for all. Organization and full disclosure will also help you manage through the process.
In the past it was rare for lenders to accept short sale proposals. With overwhelming market shifts, and changes in corporate policy, lenders have become much more willing to work with homeowners in distress, and since a short sale generally costs the lender less than a foreclosure, it can also be a way for the lender to reduce their losses.
To qualify for a short sale, homeowners must prove all of the following circumstances:
A situation is causing the borrower to have trouble affording their mortgage.
Monthly Income Shortfall
Basically the borrower has more expenses than income, which will, or already is, preventing them from affording their mortgage.
The borrower does not have significant liquid assets to allow them to pay down their delinquent mortgage.
Working with Representation
This is a complex transaction, and if short sale is an option you are considering, an experienced REALTOR® can certainly help you make the best of this situation. When interviewing potential agents, be sure to inquire about their experience with short sales and find out if they hold any designations for buying and selling distressed properties.
It is also recommended that you obtain legal advice from an experienced real estate lawyer and discuss short sale tax ramifications with your accountant. If you do not know any of these professionals, your REALTOR® can recommend experts in these fields.