Selling a home for less than is owed on the mortgage is referred to as a short sale. While they can save homeowners from foreclosure and damaged credit, they can be and often are frustratingly lengthy processes.
Phases of a Short Sale
There are several different phases to go through with a short sale. First, you’ll need to put forth a healthy case as to why your mortgage lender should give the go-ahead for a short sale. You’ll also need to locate a short sale buyer that is experienced enough to negotiate a deal with the lender, one they will want to accept. Finally, your lender could take a few weeks to a few months to consider the offer and approve or decline it.
Offer Consideration Periods
If mortgage lenders lose all of their money through defaulted mortgage loans, they won’t be in business very long. Because they are primarily concerned with getting their money back, lenders consider the upside and downside of the offer, which can take some time. Usually, they will only accept a short sale if the offer makes more sense, financially speaking, than going through with a foreclosure. Since the lenders want to lessen their losses as much as possible, they will often examine the offer closely and take their time.
Short Sale Approvals
After the lender approves the short sale, the closing period is fortunately quite brief. It is common for a mortgage lender to approve the short sale and demand that it is closed upon in only a few weeks. Some lenders may approve a short sale and then want to close within a day of accepting the offer. After your lender has approved the sale, you must be ready to close right away, just in case.
Short Sale Problems
It is important to keep in mind that your lender might be in the process of foreclosing on your property even though your short sale is actively taking place. Lenders have many departments involved in their mortgage loans, including collection departments, foreclosure departments, and loss mitigation departments. Occasionally, foreclosure departments will attempt to urge on a foreclosure at the same time that a loss mitigation department may be urging a short sale.
Seller Issues
The seller has to turn in certain financial forms to get the short sale approved. A seller who doesn’t want to leave the home might try and put off the short sale process by submitting incomplete information or intentionally missing deadlines. This can postpone the deal. The seller might also need to make a payment to a different lender in the case of multiple liens on the home to obtain approval for the short sale. Short sale contracts also usually have a clause that permits the seller to cancel the deal under certain circumstances, such as a bankruptcy filing or a change in finances.
Lender Issues
Lenders choose to reject short sales for any number of reasons. This includes a belief that the seller does have the means to pay for the loan. Other common reasons include an offer that is too low or a belief that the lender can minimize their losses by going through with the foreclosure instead. If there are any other liens on the property, including creditor judgments, it may also make it impossible for the title to be transferred to a buyer. The lender can still choose to decline a short sale request if the process of foreclosure is already in its end stages if the seller doesn’t sign a new promissory note to pay back the lender or if the seller doesn’t give a certain amount of money to lessen the lender’s losses.
Buyer Issues
The buyer might choose to step away from a deal if the process goes on too long. They might locate another property if the process goes on longer than they originally anticipated. This is especially true if the lender and agents are not properly communicating with each other. Another reason may be that the buyer’s financial situation may have changed for the better or possibly for the worst. This could mean they have lost financing for the house, or they have gained more money and can instead buy a better house. Should the home not pass the inspection, the buyer might choose to back out because they think the seller doesn’t have the money to fix the issues.
Delays
Short sales take a longer period of time to go through than a traditional home sale due to the extra work it involves. Still, there are deadlines that all parties need to meet. Every party, from the appraiser to the buyer to the real estate agent, has to send in their paperwork on time in order to ensure the deal stays together. The extra requirements and subsequent longer time frames leave open more room for the deal to fall through because one of the parties didn’t fulfill their responsibilities concerning the short sale deal or missed a deadline.
Managing a Short Sale
Homeowners who are going through with their lender-approved short sales have to stay in constant communication with their lenders. It is also a good idea to work with a real estate professional who has experience with short sales, as it can be a difficult process to try and navigate on your own without knowing what you’re doing. Furthermore, buyers who want to submit an offer for a short sale will have to put together an offer that is convincing enough to get the lender to accept it.
Things to Consider
Known as “arm’s length transactions,” certain situations involving personal relationships with other individuals may prevent the lender from approving an offer from anyone related to the buyer in a short sale. In this kind of interaction, the parties in the transaction cannot have any mutual personal or business relationships. Furthermore, if you have a private mortgage insurer, you may need to get its permission on top of it in order to finish a short sale.
