If you are falling behind in your mortgage payments, you might need to sell your home before your lender forecloses. If you have equity in your home, then you can sell it and pay off the mortgage. But for millions of homeowners who do not have equity and are upside downtown on their mortgage, there is also a way to sell your home too. It’s called a short sale. In order to qualify for a short sale, you will need to demonstrate to your lender that you have a financial hardship and that your properly values have declined. That should not be too difficult in these financial times. Since the real estate bubble burst in 2007, most buyers who purchased at the height of the market during the years 2003-2007, are upside down on their mortgages because property values have plummeted as much as 30%-50% in some areas of the country. Lenders are cooperating with their borrowers on short sales because they realized that it was a better alternative than letting homes go to foreclosure. Foreclosed homes cost lenders on average $50,000 per foreclosure. With a short sale, they just have to right off the difference between the sale proceeds and what the borrower owes on their loan balance. They don’t need to hire attorneys and file formal foreclosure proceedings.
Getting Started with the Pre-Foreclosed Home Sale Process
So to get started on selling your home before your lender starts the foreclosure process, you should contact your lender to see if you qualify for their short sale program. Many of the major lenders are participating in the Government short sale HARP program, which gives the lender and the borrower cash incentives for completing a successful short sale. If your lender is not participating in the program, they probably have another short sale program that you can qualify for. If the lender says you do qualify for a short sale, then you should hire a Realtor that specializes in short sale properties to market your property to a qualified buyer.
In the meantime, you will need to get together your financial information for your lender to review, and send them a copy of your executed purchase and sale contract when you negotiate one with your buyer. You will also need to send them a copy of your listing brokerage agreement for their review. It’s a good idea to hire a short sale negotiator or foreclosure defense attorney as well to help you negotiate the short sale with your lender so your Realtor can spend time on marketing and coordinating the closing with the title company and closing agent, as well as the buyer and their Realtor.
Your lender will pay your broker’s commissions and probably all or most of your closing costs depending on your financial condition. There is a possibility that they may ask you for a small amount of money for closing costs. The process can take 3-6 months or longer so you need to be patient and so does your buyer. Once the transaction closes, you are free to walk away. Be sure to negotiate in writing that you don’t owe any more money to your lender. Some states allow the lender to collect a deficiency judgment against the borrower for the difference between the sale proceeds and the loan balance. But in most short sale transactions, the negotiator or short sale attorney arranges with the lender that the sale proceeds satisfy your mortgage debt.
Short sales are a win win for the homeowner, the buyer and the lender. The homeowner gets to walk away without owing any more money on their mortgage, as long as they negotiate this as a condition to closing. The buyer gets a property at a discounted price with a built in equity. The lender saves money on legal fees and court costs and can concentrate on making loans and making money again.