The main cause of the short sale in a real state is due to the fact that the money made from selling a property falls short of the balance owed on a loan secured by the property that was sold.
Due to economic or financial hardship on the part of the borrower, the bank or mortgage lender agrees to discount a loan balance in the case of a short sale. The negotiation can be done with the bank’s loss mitigation or workout department through communication process.
The mortgaged property is sold by the home owner/debtor for less than the balance owed on the load, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. The cases where it is found that the debt would not be fully paid then in such situations the lender is given the right for the approval or disapproval of the proposed sale.
In reality short sales or discounted payoffs will not be accepted by all lenders if it makes more financial sense to foreclose. In fact, not all sellers or all properties qualify for short sales with this view.
In fact there is a letter of authorization which serves as the requirement from the lender. If the customer works with a real estate agent, closing agent, Title Company or lawyer, the customer will certainly receive better cooperation if he writes a letter to the lender giving the lender permission to talk with those specific interested parties about the loan. Property address, loan reference number, name of the customer, the date, name of the agent & contact information are the basic things included in the letter.
Preliminary net sheet is in fact an estimated closing statement that shows the sales price the customer expects to receive. It also shows all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any.
The sadder the hardship letter, better it is. This is a statement of facts that describes how to get into this financial bind. It also makes a plea to the lender to accept less than full payment. This is a fact that lenders are not inhumane if the customer has lost the job or is hospitalized, etc. If the customer is dishonest or is having any criminal behavior then the lenders are not empathetic under such circumstances.
The customer like noble person must be truthful and honest about the financial situation and must disclose assets for the proof of income and assets. In such situations the lenders want to know about the savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of substantial value in the possession of the customer. The lenders require assurance that the debtor cannot pay back any of the debt that it is forgiving and in this way they are not in charity business.
If the customer’s bank statement reflects unaccountable deposits, large cash withdrawals or an unusual number of checks, it’s probably the best idea to explain each of the line items to the lender in the case of copies of bank statements.
In the case of comparative market analysis there may be the case that the markets decline and properties value fall. If the customer is not able to sell the home for enough to pay off the lender due to this reason then this fact should be substantiated for the lender through the comparative market analysis (CMA). The real estate agent can prepare a CMA for the customer on demand.
The lender wants a copy of the offer, along with the copy of the listing agreement when the customer reaches an agreement to sell with a prospective purchaser in the case of purchase agreement and listing agreement. The customer must be prepared for renegotiating commissions as required.
Whether banks are willing to discount a loan balance or not depend on the mitigating situation. This situation in fact is linked to the existing real estate market and the borrower’s financial situation. To prevent a home foreclosure there is a distinctive execution of the short sale. The decision to progress with a short sale is predicated based on the most economic way for the bank to recuperate the amount allocated on the property.
If the bank considers that the short sale will result in a smaller financial loss than foreclosing as there are carrying costs associated with a foreclosure then under this circumstances the bank allows for a short sale.
By decisive consideration of the probable selling price through a valuation determined by appraisal the bank with characteristically determine the quantity of equity. The short sale will be approved by the lender if everything goes efficiently. It is desired that the lender might not report to the undesirable credit to the credit reporting agencies as a part of the cooperation. The lender is under no compulsion to support this appeal.
Advantages that include prevention of the foreclosure on the credit history and partial control of economic scarcity are desired by the homeowner. As compared to the foreclosure a short sale is characteristically quicker.
In brief, negotiating with the lien holders a payoff for less than what must be owed or rather than a sale of a debt, generally on a piece of real estate is the way the short sale can be considered.