This article will appear in the Eagle Informer in February.  It was written by three Woodhouse Group agents that are familiar with the short sale process. 

“Short sale”, unfortunately, is a term that you hear quite often these days.  And while you may think you have a basic understanding of what that means, there are several “moving parts” to a short sale and without an understanding of all of them; you may not have the complete picture.

Fundamentally, short sale means to sell a property for less than what is owed to the lien holder(s) (lenders) to pay off the loan(s.)  What makes short sales complex are the number of variables often associated with a short sale transaction.  For example:

  1.  How many liens (loans) are recorded against the property?  This can include 1st and 2nd mortgages, lines of credit, tax liens, or mechanics liens.  The fewer number of liens on the property, the more straight forward the short sale process because there are fewer lien holders (lenders) to negotiate with.
  2. What types of liens are on the property? Different liens pose different challenges.   Home Equity Lines of Credit (HELOC), for instance, can create more difficult negotiations than a 2nd mortgage lien.  Personal tax liens  and mortgage insurance can also create obstacles.
  3. Who owns the lien?  Does a bank own it or a private investor like Fannie Mae or Freddie Mac?  Sometimes there are different guidelines and rules to follow based on who owns the lien.
  4. Has the property received a Notice of Default (NOD)?  A Notice of Default is the official document that lets the seller know that the bank is foreclosing on the property and states the official date the property is scheduled for auction.  Whether the property has a NOD recorded is important because that can have an effect on the amount of time that is available to complete a short sale.
  5. How does your financial situation look on paper? Not everyone is able to try to short sale their home.  Lenders require sellers to “qualify” for a short sale by a careful review of the seller’s financial situation and their “hardship” to determine the likelihood of the seller becoming more able to resume their payments in the near future.  The lenders will require copies of tax returns, bank statements, investment statements, pay stubs, profit and loss statements if self-employed and a detailed letter explaining the personal situation that has caused the hardship and inability to pay.

There are other variables that could affect the ability to short sale a property.  These topics, and others, will be covered in future articles.  Of the various options a homeowner has when they owe more than the market value of their home and they are struggling to pay their mortgage, a short sale is a viable way to go to try to avoid foreclosure.  The most important thing to consider if you decide to try to short sell your property is to use a real estate agent that has short sale experience.  It could mean the difference between a successful short sale and a foreclosure.

Written by:  Rebecca Standerfer, Marilyn Talbot, and Judy Trimble