A short sale is when a mortgage lender agrees to allow your property to be sold for less than it's actual market value. The lender will discount a mortgage balance to give the you the owner an opportunity sell the property and turn over the proceeds to fully satisfy an outstanding loan balance. In this instance, the lender has complete control whether to approve or disapprove the sale.
Most often, the
lender will approve a short sale if the property manger owes
more than the current market value, also called being
"upside down." Another reason for the lenders to do this, is
to avoid foreclosure. Avoiding foreclosure can be a wise
decision for the lender if the person in charge of the house
has encountered a serious financial hardship or more
importantly, if getting this done will result in a smaller
financial loss than through the foreclosure process. Also,
have one done to your current property is a better option
for the owner for a number of reasons. First, even though
this will show up on a consumer credit report, it is far
better than a foreclosure. A foreclosure creates a
long-lasting back mark on your credit report and will drop
the person's credit score approximately 300 points. Also,
the process is somewhat faster and less expensive than a
foreclosure creating a superior choice if the market has
softened.
While you might think that putting yourself through this it is an easy way out of an "upside down" property investment, lenders will not even consider a short sale until a notice of default has been issued and a valid reason has been presented to the lender. Typically, the lender will go over the home owner's situation very thoroughly before approving you for this type of procedure. A loss mitigation department will asses the situation and do data analysis before approving the sale. Most often there is a hefty amount of negotiating before a sale is final to ensure the lender is fully satisfied.
Banks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.
A few examples of a hardship are:
- Unemployment / reduced income
- Divorce
- Medical emergency
- Job transfer out of town
- Bankruptcy
- Death
Typical Short Sale process at the bank:
- Bank acknowledges receipt of the file. This can take 10 days to a month.
- A negotiator is assigned. This can take 30 to 60 days.
- A BPO is ordered. The bank probably will refuse to share the results of the BPO.
- A second negotiator may be assigned. This can take another 30 days.
- The file is sent for review or to the PSA. This can take 2 weeks to 30 days.
- The bank may then request that all parties sign an Arm's-Length Affidavit.
- The bank issues a short sale approval letter.
Some short sales get approval in 6 to 8 weeks, others take 90 to 120 days, on average.
