The Short Sale Process for Sellers
When you are upside down in your home loan, it is virtually impossible to sell the property for enough to pay off the debt. Unless the buyer is willing and able to pay above market value, you can either continue making the payments and hope property values rise or look for liquidation options. One of these is a short sale.
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Identification
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When you sell real estate for less than the debts you have on the property, it is a short sale. Your proceeds on the sale are "short" of the loan balance due. Your lender may agree to forgive the unpaid balance on the loan or issue you a deficiency judgment, which is in essence a demand of payment for the unpaid loan amount.
Considerations
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Before listing your property in a short sale, obtain your lender's permission. While each lender will have its own short sale process, the procedure is similar for many lenders. Before agreeing to a short sale listing, the lender typically requires the borrower to prove the property's current market value is less than the outstanding loan balance. This is normally done by an appraiser or obtaining a market analysis from a real estate professional. Lenders also typically want verification that the borrower is unable to continue making the current payments.
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Features
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Lenders often want the borrower to list the property with a qualified, licensed real estate agent. When listing a short sale, disclose the fact that it is a short sale and needs lender approval. In a traditional listing, once the seller approves the purchase offer from a buyer, the buyer is somewhat guaranteed that the transaction will proceed to a successful close, providing the terms of the contract are met. But just because the lender agrees to the short sale listing, does not mean the lender will approve the sale. After you accept an offer from a buyer, the lender accepts, rejects or counters the offer. It can take weeks or months for the lender to respond to an offer. During this time, the buyer can cancel the contract.
Warning
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The California Department of Real Estate warns sellers to be cautious of predatory short sale negotiators or agents, working on behalf of their own self-interests to profit unfairly on short sale properties by taking advantage of vulnerable sellers. Consult with your attorney and accountant to determine if a short sale is your best solution, and work with a qualified, licensed real estate agent. Don't assume the lender's agreement to a short sale means it will forgive the unpaid balance. If it does forgive the unpaid amount, under some conditions you may be required to pay income tax on the forgiven amount.
Benefits
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Short sales are an alternative to foreclosures. They tend to hurt a borrower's credit less than a foreclosure, yet the degree of harm to a borrower's credit depends on how the lender reports the short sale to the credit reporting agencies. Making Home Affordable, a federal program, encourages lenders and borrowers to consider a short sale before resorting to foreclosure.
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References
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