With so many homes in foreclosure at this time, many people are hearing the term ’short sale’. But what is a short sale and is it something you should look into?
The term short sale comes from the fact that the homeowner and the bank are trying to sell or get rid of a property as quickly as possible. To do this, they often price the home below its current value. A short sale is different than a foreclosure in that the home is not taken back by the bank or lender but kept in the borrowers name. Doing this helps the borrower protect their credit while getting out from under a loan. Agreeing to a short sale does not release the borrower from paying the balance of the loan though. Both the borrower and the bank take a small loss, the bank tries to recapture as much of the properties value while the borrower tries to keep their credit intact.
To participate in a short sale, you should do as much homework as possible, just as you would if you were purchasing a foreclosure.
Although the bank is trying to move the property quickly, the process of purchasing through a short sale can ironically be quite lengthy. To participate in a short sale, there are many steps to be made and then the lending institution must make the final approvals, which can take some time.
If you are interested in purchasing through a short sale, you must first identify potential short sales or what is called preforeclosures in your area. You can search courthouse listings or legal ads. You want to determine how much is owed on the house in relation to its approximate value.
You will then want to view the property and come up with an estimate of how much it’s going to take to repair or renovate it. Find out what the property is worth and what the profit potential is. Ask the seller or agent if there are any liens on the property and which lender is the primary lien holder.
Last, you will want to contact the lender. Most lenders have a loss mitigation department. If they do not, you will want to find out who makes the final decisions on negotiations. You will also want to have contacted the homeowner and completed an authorization letter that is notarized, which gives the lender permission to discuss the mortgage situation with you. The lender may ask you to complete a short sale application.
Once this is complete, you are now prepared to put together your proposal. Yes, a proposal. A proposal package includes the application, authorization letter, plus the following:
• A purchase and sale contract
• A hardship letter showing the homeowner has fallen behind on payments by 90 days and why the lender should accept your offer. This letter includes information by the seller as to why they cannot afford the house. This can include evidence such as a job loss, delinquent accounts, utility shut off notices, car repossession paperwork and so on.
• Estimate of property value.
• Details of costs and liabilities
• A settlement statement, which outlines the purchase price, closing, costs and other costs involved in the transfer of the property.
After all of this has been given to the lender, it is not uncommon that they may come back to you with a counteroffer and that you will have some negotiating to do. Once you agree upon an amount, you, the seller and the lender get everything in writing and record it. You want to make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours.
While this process sounds easy, there is a lot of footwork and homework to be done along with a need for patience. There are professionals that can help you with this process as well. But in the end, it is possible you could get a property for a good price.
Ron Scott is owner of MyExpressHomeLoans.com, a provider of your Austin Home Loan as well as high quality financial services. Our mortgage professionals will work to ensure that you get an Austin mortgage that is tailored specifically to meet your needs. For more information please visit http://www.MyExpressHomeLoans.com.
