Short Sale Basics for Home Sellers
Most people recognize short sales primarily as a foreclosure alternative, which is fairly accurate. But few homeowners understand how a bank short sale really works, and as a result, many of them still end up in foreclosure even when they’re perfectly qualified. If you're considering a short sale and don't know where to start, read on for a basic guide to help you out.
How it works
In a bank short sale, your lender agrees to accept less than your outstanding balance as payment for your mortgage. You then sell your home at a discount, and turn the proceeds over to your bank. Most lenders will accept a short sale if it will cost them less than if they foreclosed. So while they take a loss and you don’t get to keep your home, a bank short sale still benefits both parties by avoiding the foreclosure proceedings.
Who qualifies
A short sale works best for people who owe more than their home can sell for in the current market. For example, you may owe $150,000 on your home, but due to market conditions, its value has dropped to $125,000. With a bank short sale, your bank agrees to take the $25,000 loss so you can sell your home and get rid of the mortgage.
Some banks also require you to be at least 60 days behind on your mortgage before accepting a short sale. However, borrowers who are still current may get a bank short sale if they can prove that a financial hardship will make it hard for them to stay current in the long run.
What you need
Each bank has its own short sale requirements, but in most cases, you will need a hardship letter explaining your situation and why you need a short sale. Of course, you will need to back up your claims with financial documents such as bank statements, tax forms, pay stubs, and a financial statement showing your assets and liabilities. Call up your lender to find out the particulars and make sure you have everything you need before submitting your short sale application.
When you should start
If you've already received a foreclosure notice, you should start the short sale process as soon as possible. The bank short sale process can take several weeks or even months, especially with major lenders who deal with thousands of applications every day. The proceedings vary by state, but as a general rule, you should give yourself around 60 days to complete the short sale.
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