Due to plummeting real estate values in recent years, there are record numbers of homeowners who owe more on their mortgages than the market value of their homes. Home owners who bought their homes at the height of the market from 2006 through 2008 may find themselves in this situation. This is commonly called being “upside down” in the mortgage, and under certain conditions, the homeowner may qualify for a short sale on the home. A short sale is when the lender forgives a portion of or lowers the loan amount in order for the property to be sold at market value. Simply stated, lenders make the financial decision to dispose of the property in a regular real estate transaction instead of foreclosing on the property if this makes sense from a profit and loss perspective.
Do You Qualify for a Short Sale on Your Home?
In the short sale process, you sell your home and settle your mortgage debt for less than the amount owed. You may be eligible to sell your home in a short sale under the U.S. Treasury’s Home Affordable Foreclosure Alternatives Program (“HAFA”) if:
If you qualify and want to move forward with a short sale, you should consult an attorney or a professional real estate broker/agent who is experienced in short sale transactions. See the “Basic Steps for a Short Sale” for a general idea of the process…but keep in mind that the steps may vary depending on the lender requirements and/or the advice of the real estate professional who will guide you through the process.
Basic Steps for a Short Sale Transaction
A real estate professional who specializes in short sales and is well-qualified can help you with these steps:
These steps will need to be done for each lender that is involved and every lender has their own process. Some lenders that are in second position (2nd trust/mortgage) will only start processing their short sale after they’ve received written short sale approval from the first trust. This means that the overall short sale approval process may take twice as long if there are two trusts/mortgages secured by the property.
Negotiating a short sale is no easy task; therefore, it is highly suggested that homeowners considering a short sale work with a licensed real estate professional who specializes in short sales. An experienced agent/broker will be well qualified to guide a homeowner through the short sale process, facilitate communication and interaction with the lender, assist with collection of lender-required documents, and bring the transaction to a successful close.
Consult an attorney and/or a licensed tax professional to understand all your obligations relating to a short sale.