The short sale process step-by-step

If you are behind on your mortgage payments, a short sale may help you avoid foreclosure and free you from your mortgage debt.

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short sale processIf you fall behind on your mortgage payments to the point where your bank or mortgage company has issued you a formal Notice of Default, selling your home is one option to take to avoid formal foreclosure proceedings. In fact, if you have received a Notice of Default, it should include a detailed description of the options you have and the timeline you are afforded to avail yourself of those options. One option could be a short sale. A short sale process may help you avoid foreclosure and get you out from under your mountain of debt. If done properly, a short sale may also be conducted without severe damage to your credit rating. 

Just what is a short sale?

In real estate transactions, a short sale is when a property is sold and the proceeds from that sale will be (knowingly) less than the total amount owed on the property. This total amount owed can include any and all mortgage balances and any liens or encumbrances placed against the property. A real estate short sale can only be completed when both the lender and the borrower agree. For the borrower, a short sale provides a less painful alternative to foreclosure and will have less of a negative impact on credit ratings and future prospects. For the lender, agreeing to take a moderate loss on a property resulting from a short sale can be more attractive than the time and sometimes substantial fees involved with pursuing formal foreclosure. A short sale is also an option that can often get a hew homeowner settled into a property instead of having vacant homes sitting with values declining and maintenance and upkeep being deferred.If you’ve come to a place where you need to seriously pursue alternatives to foreclosure and you believe that a short sale might be the best option, follow a few important steps to take full advantage of it:

Step 1 – talk to your lender

short sale2Sometimes, one of the hardest things to do when facing financial hardship is to talk about it. When it comes to getting behind on your mortgage and falling into pre-foreclosure and possible foreclosure, direct and proactive communication can be your best approach. Early and direct communication with your lender is one of the more simple things you can do to avoid the rapid accumulation of stress and pressure. It’s simple, but (admittedly) never easy.

Communicating with your lender will become essential if you hope to pursue a short sale as a means to avoid formal foreclosure. When you are issued a formal Notice of Default by your lender, there will be steps spelled out in it whereby you can remedy your pending default. One is a traditional sale of your property. If you know that you want to pursue the sale of your home instead of allowing it to possibly fall into foreclosure, your lender will spell out the time you will have to sell the place in the traditional fashion.

Step 2 – list your home

Most lenders require that you attempt to sell your home through a traditional sale before agreeing to participate in a short sale. If you are going to try and sell your home as a way of avoiding foreclosure, be sure to select a real estate agent who is experienced in selling homes through short sales. That way, should you get to the point where a short sale is imminent, you’ll have an agent capable to staying with you through the entire process.

You need to make sure your home is in optimal condition for potential buyers, so you should make any minor repairs that you can afford as this will ensure your home has the best curb appeal possible.

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Step 3 – approach your lender with the short sale option

short sale7After your home remains unsold on the market in a traditional sales setting for the time your lender requires, you may be able to request the home be sold through a short sale. Your lender has to agree to this request, as it will be losing money on the sale. The actual process varies by lender, but most require that you make your formal request in the form of an application that must be completed and submitted to them.

You will also have to compose a hardship letter. This document explains why you need a short sale, which is also referred to as a pre-foreclosure sale. You need to detail why you can no longer afford your mortgage payments and the efforts you've made attempting to sell through a traditional listing. Your lender will also ask you to submit a list of financial documents to prove your hardship and why a short sale is the only way you can avoid foreclosure.fter your home remains on the market for the time your lender requires, you may request to sell your home through a short sale. Your lender has to agree to this request as it will lose money on the sale. The actual process varies by lender, but most companies require that you make a formal request in the form of an application that must be completed and submitted to them.

You will also have to compose a hardship letter. This document explains why you need a short sale, which is also referred to as a pre-foreclosure sale. You need to detail why you can no longer afford your mortgage payments and the efforts you've made attempting to sell through a traditional listing. Your lender will also ask for a list of financial documents to prove your hardship and why a short sale is the only way you can avoid foreclosure.

Step 4 – sell your home

Some buyers feel homes that sell in pre-foreclosure offer better deals, so don't be surprised if interest in your home increases once you’ve embarked on a short sale. If you receive an offer, present it to your lender (or better yet, have your agent submit it.) Your lender will then evaluate the offer and see how it compares to the market value of the home. If the lender agrees to the sale, the selling process is similar to a traditional home sale.

The lender can also return with a counter offer, and the prospective buyer can accept this, submit a counter to the counter offer, or reject it and end the negotiations. A lender can also reject an offer outright. If this occurs, the search for a new buyer starts all over again.ome buyers feel homes that sell in pre-foreclosure offer better deals, so don't be surprised if interest in your home increases. If you receive an offer, present it to your lender. It will evaluate the offer and see how it compares to the market value of the home. If the lender agrees to the sale, the selling process is similar to a traditional home sale. The lender can also make a counter offer, and the prospective buyer can either accept this or reject it and end the negotiations. A lender can also reject an offer outright. If this occurs, the search for a buyer starts over again.

 

Selling a home via a short sale can be stressful. It is important that you research the option thoroughly. Once you understand how things work, the short-sale process will be easier to navigate, and if successful, will bring your financial hardship to an end. Reply! can help you research your home values and find a real estate agent who specializes in short sales.

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About the Author

Larque Goodson is an real estate editor at Reply! She has 20 years of experience in photojournalism and marketing. To share ideas about real estate, find her on Google+.