Key Takeaways
- A short sale usually indicates a homeowner in financial distress, a real estate market in the doldrums, or both.
- The short sale must be approved in advance by the mortgage lender.
- The former owner may be required to pay the shortfall or the debt may be forgiven.
How does a short sale get approved?
Therefore, the usual way a short sale can be approved is for a buyer to submit an offer. The process will usually play out something like this: The selling agent lists the short sale. The seller delivers the lender's required documents to the agent. The buyer submits an offer subject to lender approval. The seller signs the buyer's offer.
How does a short sale work with an agent?
Seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party (the bank) approval. The agent finds a buyer who makes an offer based on market value, which is often less than the amount of the mortgage. Seller accepts the buyer's purchase offer.
When does a buyer have to close on a short sale?
The buyer must close by the date specified in the short sale approval letter or get an extension approved. If the approval letter is specific to a buyer, then the short sale listing agent may need to request a new short sale approval letter.
What do Lenders look for when buying a short sale?
The seller has no assets: The lender will probably want to see a copy of the seller's tax returns and/or a financial statement. If the lender discovers enough assets, they may not grant the short sale because the lender will feel that the seller can pay the shorted difference.
Why would a lender approve a short sale?
A short sale approval letter is a letter that a lender issues to the seller if a short sale offer is approved for less than the amount the borrower owes on a mortgage. It's issued by the lender at the end of a short sale to demand the "short" loan payoff in return for releasing the lien on the property.
Who are parties to a short sale transaction?
Since a multitude of different parties must cooperate to get a transaction completed (buyer and seller, both sets of realtors, creditors, escrow company, insurance company, the lender, the broker AND the bank finally) it may be necessary to have everything completed BEFORE the bank signs off on it, allowing it to be ...
What does pre approved short sale mean?
That is typically how you get an approved short sale. Once you have the bank's approval, you know that the seller qualified for the short sale, the sales price was approved, and the buyer's funding cleared.
What is the process of a short sale?
To short sell a home, the seller will need to file a hardship letter with their lender stating why the mortgage can't be fully repaid, along with documentation such as pay stubs and tax returns. Typically, the lender will only agree to a short sale if the homeowner has only recently fallen on hard times.
Does the seller make any money on a short sale?
A short sale means they won't earn any profit from the sale of the house - the bank or mortgage lender gets all the sales proceeds.
What happens after a short sale is approved?
After the seller accepts the offer, the listing agent will send the listing agreement, the executed purchase offer, the buyer's pre-approval letter, a copy of the earnest money check, and proof of funds to the bank.
Why do banks prefer foreclosure to short sale?
It costs more to the lender to go through the foreclosure process. During a short sale, the lender shares the cost with the homeowner to quickly sell the home. From a financial standpoint, many lenders prefer a short sale if the home is not expected to sell for more than the balance due at the foreclosure auction.
Which is worse foreclosure or short sale?
Short sales are less damaging to a credit report than a foreclosure. A foreclosure is when a home is seized and put up for sale by the investor or bank. Every mortgage contract has a lien on the property that allows the bank to control the property if the homeowner stops making mortgage payments.
How can I speed up a short sale?
Speed up your short sale closing date by making your offer as free of contingencies as possible. Submit your mortgage approval with the offer. Contribute a substantial deposit to show your good intentions.
Is buying short sale a good idea?
In short, short sales are a good idea if you have plenty of time and money. A short sale buyer may get the property at a reduced price, but the property (in all likelihood) has its share of problems — think “fixer-upper” — and the deal needs to go through considerable red tape to make it happen.
Where does the money go in a short sale?
In a short sale, the owner will sell the home, but all of the money will go to the bank; that payment is usually enough to keep the homeowner from having to file for foreclosure. Foreclosures are usually the last options exercised by lenders.
How can I avoid a short sale?
Start a loan modification. Under the federal Home Affordable Modification Program (HAMP), many homebuyers can qualify for lower payments that can help them stay in their homes. ... Catch up on your payments. ... Decide to rent your home. ... Don't send in your paperwork. ... Allow your home to go into foreclosure.
What is a short sale in real estate?
A short sale is when a mortgage lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner. The lender forgives the remaining balance of the loan.
What is REO in mortgage?
Real estate owned (REO) is a bank-owned property that failed to sell at a foreclosure auction. When homeowners fail to pay their mortgages, they can either sell their property immediately and offer the sale proceeds to the bank or give it up to the bank for foreclosure.
What does sale approved mean?
Approved Short Sales An approved short sale is a sale in which the lender has pre-approved a price to accept for the property. The lender may agree to the sale price and terms of the sale and supply the homeowner with a written agreement to this effect.
What are the requirements for a short sale?
Qualifications for a Short Sale 1 The home's market value has dropped: Hard comparable sales must substantiate that the home is valued at less than the unpaid balance due to the lender. This unpaid balance may include a prepayment penalty. 2 The mortgage is in or near default status: In the past, lenders would not consider a short sale if the payments were up to date. Currently, lenders are eager to head off any future financing problems, no matter the payment status. A high risk of default will generally sway a lender toward accepting a short sale. 3 The seller has fallen on hard times: The seller must submit a letter of hardship that explains why they can not pay the difference due upon sale, including why the seller has stopped or will stop making the monthly payments. 4 The seller has no assets: The lender will probably want to see a copy of the seller's tax returns and/or a financial statement. If the lender discovers enough assets, they may not grant the short sale because the lender will feel that the seller can pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.
What is short sale?
A short sale occurs when a home is sold for less than the amount still owed on any liens against the property. This option is generally used in lieu of foreclosure. A short sale has to be approved by any lenders who have a stake in the property being sold, and the seller and property have to meet certain requirements to qualify.
Why can't a lender grant a short sale?
If the lender discovers enough assets, they may not grant the short sale because the lender will feel that the seller can pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.
What is a short sale in foreclosure?
Sometimes, to avoid going through the cost of foreclosure, a lender will sanction a short sale by letting a buyer purchase the home for less than the mortgage balance while the home is in the pre-foreclosure stage, one of the three stages of foreclosures. Some sample steps of a short sale are:
What does it mean when a mortgage is shorted?
A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. If your mortgage is $100,000, but your home value dropped to $90,000, you are short $10,000 plus the costs to close the sale. It might be possible to sell your home short if your mortgage balance matches the sales price because there are still closing costs that will bring the home into the short sale category.
What happens if you don't meet all the requirements to sell your home?
If you don't meet all four requirements, you may not qualify to sell your home in this manner. The home's market value has dropped: Hard comparable sales must substantiate that the home is valued at less than the unpaid balance due to the lender. This unpaid balance may include a prepayment penalty.
Can you buy a short sale if you meet all the criteria?
So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place.
How long does it take for a short sale to be approved?
The bank may respond within two weeks or the homeowner may wait two months or longer before the bank approves or denies the application. During this time frame, however, the homeowner and his real estate agent can begin marketing the property in lieu of a formal approval.
What is a short sale?
The short sale process consists of a homeowner requesting his mortgage lender’s permission to sell his home for less than he owes on the mortgage. Although the lender takes a loss when accepting a short sale proposal, it often incurs less of a loss than it would if it denied the short sale and instead seized the property through foreclosure.
What to do when requesting a short sale package?
When compiling a short sale request package, a homeowner must not only compile records of her financial insolvency, but also obtain an estimate of the home’s value from a licensed broker. An alternative to this is submitting a list of comparable property values from homes in the immediate vicinity and allowing the bank to determine the fair market value of the home on its own.
Can a bank short sell a home?
Not all lenders offer short sales as an option for struggling borrowers. Some only approve short sales under specific circumstances. Circumstances under which a bank may consider a short sale include situations in which the value of the property has recently dropped below the value of the mortgage loan, the mortgage is in default or nearing default, or the homeowner is struggling financially and cannot keep up with her mortgage payments for much longer.
How does a short sale work?
In a complete short sale process, banks actually deal with two steps to HUD loan approvals. First, the bank approves the preliminary Closing Disclosure, which details an estimate of all costs associated with closing the sale. Then, just before closing, the bank approves the final Closing Disclosure. There are a few key factors the seller's bank ...
How many units do you need to purchase a home for HUD?
To qualify for a HUD loan, as with an FHA loan, you must only be seeking to purchase a home of no more than four units as your primary residence. 3 . Beyond that, part of the approval will come down to any liens the seller has on the home. Many junior (secondary) lien holders may not be involved in the HUD approval.
Do banks hire appraisers?
With so much money at stake, you might think a bank would want to hire an independent appraiser to assess value. However, most banks pay a random real estate agent who isn't even necessarily a neighborhood specialist to give the bank a quick opinion of value they call a broker price opinion ( BPO ).
How can a bank sabotage a short sale?
Here are some of the ways a bank or its investors can sabotage the short sale: Demand a higher sales price than an appraisal will ever meet. Some agents mistakenly believe that banks are stupid and/or the BPO agents are incompetent. But that's because agents believe the banks care about the BPO and that the banks are telling the truth.
Why do banks refuse short sales?
Reasons Banks Refuse a Short Sale. Sometimes banks will make unreasonable demands in a short sale. They often make unbelievable requests to approve the short sale based on their investor requirements. Those demands don't always make sense. It would be nice if a bank would just lay it on the line and say it doesn't want to do the short sale, ...
Will banks approve short sales in 2021?
Many underwater sellers are worried that their banks may reject a short sale when the truth is, if the seller and the property qualifies, most banks will readily approve a short sale. As with most truisms, though, there are often exceptions.
Can a bank negotiator ask a seller to move back into the home?
The bank negotiator could require that the seller move back into the home, even if the seller moved across the country to take a new job. The negotiator could suspect the seller won't move back, so the negotiator doesn't have to reject the short sale — the seller will do it by refusing to move. The bank could demand a seller contribution ...
Do banks need to appraise a short sale?
Sometimes the bank will counter a buyer's offer just to see if the buyer will pay more, but in the end , the buyer's lender still needs to appraise the home at the price agreed upon. Before approving the short sale, the bank may want to see the buyer's proof of funds and/or a pre-approval letter, if the buyer is obtaining financing.
Can a bank ask for a seller's contribution?
The bank could demand a seller contribution the seller cannot afford to pay. It is not unusual for a bank to ask the seller for additional money, above and beyond the sales price. Often, the bank will not allow the real estate agents or the buyer to pay that contribution, which may be exorbitant.
Can banks accept short sales?
Don't expect to walk away with an approved short sale and no contribution if you have assets and disposable income.
How long does it take to get a short sale?
Depending on state law, the short sale negotiation process could start six months after the notice of default has been issued.
What is a short sale under water?
Under Water. To qualify for a short sale, the property’s value must fall below the outstanding mortgage balance (including all fees and penalties). The homeowner can commission a formal appraisal to determine the property’s market value.
Can a short sale be considered a mortgage in default?
Mortgage in Default. The homeowner must be in default before the lender will consider a short sale. To be in default, the homeowner must miss mortgage payments. Even then, the homeowner must explore all other options (such as repayment plans and loan-modification programs) before he can qualify for a short sale.
How long does it take to get a short sale approved?
A short sale can take up to six months to be approved because many factors can slow the process down. You might be able to reduce the time it takes to be approved by asking your agent for some information before making an offer. Waiting for a short sale to be approved can be agonizing, but the best action you can take is to wait for the bank.
What does it mean when a bank has a short sale?
An especially lengthy short sale period can also mean that the bank has internal problems, a staff shortage, or that it's lost the file a few times; this causes the listing agent to resend the package over and over again.
What does it mean when a short sale closing is bad?
A poor short sale closing record on the listing agent's part usually means your chances of getting an approval are slim.
How long do you have to wait to call a bank?
Calling the bank often means waiting on hold for anywhere from 10 minutes to an hour or longer —not something anyone would look forward to multiple times.
Can you cancel a short sale?
One of the hardest things for buyers to understand is that threatening to cancel an offer means absolutely nothing to the bank. It doesn't care about the property's condition, location, repairs you want to make, or an urgent matter. Your best bet—if you truly want the home—is to stick it out and wait.
Can a listing agent outsource short sale negotiations?
It depends as much on the lender as it does on the listing agent. Some listing agents outsource their short sale negotiations to a third party; this can often delay the response even more, but there are a few things you can do to try to hasten the process.
