Short Sale Qualifications
Short Sale Qualifications
First and foremost a seller needs to have a “hardship” or in other words a legitimate reason that they cannot keep making their payments. By definition it is a material change in the financial situation of the homeowner that will affect their ability to pay their mortgage. A seller without a financial hardship that is upside down in the marketplace is nothing more than a dissatisfied homeowner. They will not qualify for a short sale and they will have to wait until the market comes back, go to foreclosure or make up the shortfall with cash at closing. Some examples of hardships are:
· Mortgage adjustment or payment increase
· Loss of job
· Failure of business
· Severe property damage
· Death of Spouse or other wage earner in family
· Severe illness
· Reduced Income
· Tax Increase
· Relocation, having to support two households if you are transferred
· Too Much Debt
· Military Service
Again, if you do not have a legitimate hardship then you will not be eligible for a short sale.
Second, you must be insolvent. You cannot have the ability to pay down your mortgage. If you have the liquid cash or assets then you must use them to pay down your mortgage. If you have some cash or other liquid asset but no enough to pay down the mortgage then the lender most likely will require you to use that towards the sale of the property.
Keep in mind that a short sale is not a way to get out of a mortgage, it is a tool for a borrower to use when they truly cannot make their payments.
THE SHORT SALE PROCESS
There are many, many factors that go into a successful short sale scenario. If you have already contacted your lender or lenders and tried to work out loan modification then that is a plus and helps with the process. The very first step though is to get your property on the market and get an offer. In this market that is not easy and you must price the home aggressively to entice a buyer to go through the short sale process. It is longer and more uncertain than regular sales so most buyers try and avoid them. You cannot go too low on the pricing as the banks will come up with their own value and if it is too low then they will disqualify the contract and you will have to start over again. Often times there is not enough time to go through this process a second time before the foreclosure process is completed. You cannot go too high in your pricing because you need to obtain an offer quickly. It is always a race against the clock. Once we have a contract we put a short sale package together that includes:
· The executed contract
· The buyers pre approval letter
· The listing history
· The hardship letter
· Your paycheck stubs
· Your bank statements
· Your financial worksheet
· Your tax returns
· The listing agreement
· A sample HUD one showing all closing costs
· A list of any damage or repairs
· A list of any other deficiencies or liens against the property
Once the package is in the hands of the lenders then they will order their own determinant of value, which is typically a BPO (Broker Price Opinion) or an appraisal. Each trust holder will do this as well and each trust holder gets their own package. If the lenders value comes back higher than the contract price by any significant margin then they will counter the contract terms to reflect this value. If the buyer rejects this price then we will at least have an approved price and we will have to begin the process of marketing the home at the higher price. This costs us time, creates additional expense in the carrying costs and potentially we can run out of time before the foreclosure process takes place. If this is something that you are considering do not wait until way late in the process. The sooner you can get started the better off your chances of a successful short sale will be.
Once value is established and all lien holders have verified that the hardship is acceptable then the negotiation begins! If there is more than one lien holder then there is negotiation between them that we facilitate. In most cases the second or third trusts have nothing to lose in short sale negotiation and everything to gain but they will get wiped out in the foreclosure process. The first trust holder will come out best in the foreclosure process but wants to avoid the costs if they can. They cannot accept the short sale unless the other lien holders accept the terms as well. So typically they will have to give up some of their gain to the other trust holders to make the transaction work. Each lien holder will want to negotiate with seller as well as far as deficiency judgments and any cash contributions. It is a long and very involved process and it requires expert assistance.
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