How to Handle a Pre-Foreclosure Short Sale

A pre-foreclosure short sale is an option that is available to homeowners who owe more on their houses than they are worth, and who are having trouble keeping up with the mortgage payments or who have to move. While a pre-foreclosure short sale will be hard on your credit score, you will be back on your feet, financially speaking, sooner than if you choose a foreclosure. Here are some tips on handling a pre-foreclosure short sale situation.

Difficulty: Moderate

Instructions

1. Have your house appraised. If the house is worth at least the amount of money that you owe the bank, then a short sale probably will not be necessary. If the house's value has dropped since you bought it, a pre-foreclosure short sale might be your best option.

2. Call your mortgage company. Let them know that you are having trouble making your insurance payments, and that you'd like to discuss the possibility of a pre-foreclosure short sale. If you don't have a contact person at your bank or mortgage company, this is the time to make one.

3. Call a real estate agent experienced in pre-foreclosure short sales. Explain your situation and ask if they can help you. Allow them to walk through your house, and ask for their advice. Give him or her the name and direct phone number of the contact person at your mortgage company.

4. Fill out all of the paperwork necessary. You will need to fill out an application form, compile financial documents, and may have to write letters explaining your financial situation. Be honest in all of your paperwork so that the bank can give you any options available to you.

5. Maintain the house as you would if it were up for traditional sale. Keep it clean and have the lawn mowed and watered. If possible, secure another place to live and move out of the house, as an empty house will sell more quickly.

6. Once you get an offer, your real estate agent will want to submit it to the bank. Be sure to sign all paperwork immediately. Keep excellent records.

7. Once your pre-foreclosure short sale goes through, work on rebuilding your credit. It may be two to three years before you will be able to get another mortgage. Be diligent in paying off any debts that you still have, and know that you will be a homeowner again soon.

Tips & Warnings

• If several months pass in the pre-foreclosure short sale process, you may need to resubmit financial documents to the bank. Be prepared for this and save all bank statements and paystubs that come in.
• A pre-foreclosure short sale can take a long time to complete. Be patient.
• Ask an attorney for advice if at any time you have questions, or if you live in a non-deficiency state.
• You may get taxed for the amount that is short. This will be considered taxable income. Seek the advice of an accountant to see if you will be responsible for paying taxes on that amount.

Resources

• More About Short Sales