What is a Short Sale?
A short sale is the process by which a homeowner sells their home for less than what is owed to the current lender or lenders or when the cost to sell a home does not cover the current balance due the lender. A short sale is one option for homeowners who are facing foreclosure. It's not quite as easy as it sounds, but not as difficult as many believe.
Properties sold short are always subject to lender approval. Many banks require the home be listed on the local MLS by a Realtor. I have had some banks tell my clients they have to have the home on the market for three months before they will consider a short sale.
Although banks will always do their own BPO's and appraisals, when you are listed with a local realtor, we can judge the market based on price of recently sold, through price reductions and feedback more thoroughly. This is crucial data we can present to the bank on your behalf when we do receive an offer.
The homeowner who decides a short sale is an option for their circumstances will need to complete a package which is required by the bank with several documents, including, but not limited to:
- 2 years tax returns
- 2 pay check stubs or profit/loss statement for self employeed
- Hardship Letter - detailing the circumstances which led to the default
- Authorization to Release Information - allows the bank to speak to your Realtor
- Financial Worksheet
- Listing Agreement
If the home was financed using an FHA loan, there are additional steps which need to be taken: FHA loans have specific guidelines for participation in the short sale process. The homeowner must adhere to the preforeclosure sales procedure for FHA loans, which includes homeownership counseling. Homeownership counseling provides the homeowner with information on all their options. You may find an alternative to foreclosure which is better for your particular situation.
Search here to find a HUD approved Counseling Agency in the Indianapolis area.
If you are facing foreclosure and believe a short sale may be an option for you, contact me for a confidential consultation.