How Do Short Sales Go?

When we touched on short sales earlier, the pros and cons were discussed, but we haven’t really colored in the photo we drew just yet. Until now, of course. Today, we’re going to talk about how the process of a short sale usually goes.

A Quick Reminder: What’s a Short Sale?

Directly quoting from our previous article on short sales, “A short sale essentially means you’d be selling the home at an amount lower than what you owe on the mortgage.” Whatever you sell it for, you pay that to the bank, making a massive debt manageable. You’ll usually have to pay for the remaining amount, but you don’t have to in some states. Either way, it’s an excellent solution to pick instead of having to go through a foreclosure process.

This is allowed by banks and other financial institutions when someone goes into bankruptcy, unemployment, medical issues, or other unfortunate circumstances. Through short sales, you can get out of debt, and the bank can save money that they would have lost if they had to opt for a foreclosure or repossess the property.

And before we go any further, we’d like to remind you that short sales are a complex thing. As much as this step-by-step process is simple, there are monkey wrenches in various types and sizes that can complicate the whole thing and test your patience.

How Are You Doing with Money?

The only time that a bank would agree to a short sale is when you’ve entered a circumstance when you can’t afford the mortgage payments anymore. Emphasis on “when you’ve entered.” If your issue has already been there from the start (including undisclosed information) and nothing else has happened since getting the mortgage, the chances of them agreeing to do a short sale are less likely.

In addition, your lender is also going to be looking at your spending habits. If you say you’re going through a financial crisis but don’t really show it, they’re not going to believe you. Note that a short sale acts as a last resort option to help them prevent financial loss. It’s not something they want to do if it’s within your means to continue giving them money.

Asking Permission 

This is where you go to your lender and speak to the “right people”. A customer rep likely doesn’t have the power to make that decision, so don’t hesitate to ask for someone from the loss mitigations department. If things don’t work out the first time, you can try again on another day. Again, part of the entire process is showing that you don’t have any other choices left. This is going to sound weird, but having gone on default makes it convincing. That makes it sound like going on default is a good thing, but that just drives the point a little harder.

Once the lender agrees to do a short sale, you can start breathing a sigh of relief because you’re going to need it for everything else that comes next.

Paperwork and Buyers

At this point, you have to create a short sale proposal and start looking for buyers. Because this involves a lot of paperwork, you might want to get an attorney, a real estate agent, and an accountant involved. We know they cost money and that finances are already hard to come by, but making legal mistakes can cost a lot more.

When it comes to pricing, there’s a bit of a balance that you need to hit here. You’re going to want to bring the value down (as is the nature of short sales), so a real estate agent can help you crank out the numbers. If you’re still going to have to pay the difference, do take note that you also want this amount to save you from further financial torment. Don’t go crazy low with the price.

Speaking of the real estate agent, they’re expected to help you find a buyer as well. Whoever the buyer is, you’re getting them involved in this patience-testing process, which usually ranges from 3-4 months. Reviewing proposals can take time, and if the lender negotiates with the agent/buyer, the back-and-forth will take additional time. But that’s just the price of trying to buy a property for less.

The Proposal

In addition to the short sale proposal, you’re going to need to provide proof that this short sale is indeed intended to save both parties from potential loss. That means you have to furnish a few more documents like medical bills, a death certificate, a financial statement, a termination notice, tax returns, bank statements, and many others that could help the lender agree with you.

There may be agent-related paperwork too. They might need you to provide an authorization letter for them to speak to the bank in your position and a comparative market analysis (CMA) to give some credibility to the price decided.

You’ll also need to write a hardship letter containing the details of why you can no longer meet the next mortgage payments. No need to be a drama queen (or king) here, though.

Once everything is ready, it’s just a matter of sending everything through and waiting! The lender will have to make a decision based on the information you’ve provided and other information they have on their hands. Yes, they’ll likely be looking at your spending habits too. A recent purchase at Gucci might make them think you still got some money lying around.

If the lender thinks that you could do other things to make the situation better (either for themselves, you, or both), they may ask you to do it. An attorney can help you if they start asking for questionable things like making you use your cash assets.

The bank will still need to contact the buyer. They might even negotiate for a higher amount. All you need to do is wait. If it does get approved, you can breathe a second sigh of relief. You can reserve a third one once you pay off the remaining amount.

If you’re not necessarily at this point, but FEEL like you’re going in this direction, it may be a good decision to sell your property ahead of time. This way, you can get the property at a better value!

Don’t know where to start? If you’re in the Florida area, you can start with us, Shorefront Investments! We’re Florida-based real estate investors looking to buy and sell properties fast. You can contact us by giving us a call at (850) 713-4866, sending us an email, or filling a form on our front page.