Short Sales Explained

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Federal Government have also improved the chances of getting a short sale approved.

But to be technical, here's a more official definition: A homeowner is 'short' when the amount owed on his/her property is higher than current market value.

A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.

This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. I hold the CDPE® Designation and am ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction.

3 Must-Have Qualifications for a Short-Sale Homeowner

While the misconceptions of what qualifies a seller for a short sale are many, the reality is actually very simple. Following is an explanation of the three major items that most lenders are looking for to see if you will qualify.

Almost every lender will want to see that you cannot afford to pay your current mortgage. The way that this is demonstrated is on a financial worksheet that your agent will provide. This is essentially a monthly profit and loss statement. While this may sound difficult in reality determining whether you have monthly shortfall or not is actually relatively easy.

1. FINANCIAL HARDSHIP

First and foremost a lender will want to see that you have a ‘financial hardship’. A financial hardship is a verifiable issue that has or will cause you to miss payments or have financial difficulties. Financial hardships can be issues such as:

• Mortgage Payment Adjustment

• Job Loss

• Too Much Debt

• Business Failure

A simple definition for ‘financial hardship’ is: A material change in-between the day the mortgage was signed and today that has affected your ability to pay.

2. MONTHLY SHORTFALL

Almost every lender will want to see that you cannot afford to pay your current mortgage. The way that this is demonstrated is on a financial worksheet that your agent will provide. This is essentially a monthly profit and loss statement. While this may sound difficult in reality determining whether you have monthly shortfall or not is actually relatively easy.

The Shortfall equation is:

Total Monthly Income – Total Monthly Expense = Monthly Shortfall

A mortgage modification involves the reduction of one of the following:

• The interest rate on the loan
• The principal balance of the loan
• The term of the loan
• Any combination of the above.

This typically results in a lower payment to the homeowner and a more affordable mortgage.

3. INSOLVENCY

In order to qualify for a short sale, you must not have the means to pay down your mortgage. This means that the mortgage company wants to see that you owe more than you have in cash (known as being insolvent). You do not however have to be completely broke ― this is a common misconception, the lender will want to see that over time you will not be able to pay your mortgage obligation. Having money in the bank for living expenses is common and will not disqualify you.

In order to go through these issues it is recommended that you sit down with your agent and examine each one in detail. While a short sale may seem like a difficult process the right agent can make it a relatively simple one.

Take action and make an appointment with us today and get yourself started on the path to financial recovery. My team has specialized training on helping homeowners who may be facing foreclosure. Please call me today for a no cost confidential consultation.