Despite recent upticks in the South Florida housing market, many homeowners who purchased property at the peak of the real estate market find themselves underwater in their mortgage. Although the prognosis for the market is good and we are seeing positive growth, the possibility of housing values returning to levels seen before the housing bubble burst may be a long way off. For homeowners who financed with an unconventional mortgage this is of little comfort as they compare their existing mortgage balance to their current housing value.
For many of these homeowners who can no longer afford to pay their mortgage or who cannot stay in a home that is underwater in value, and for whom a loan modification is not an option, a short sale may be their only alternative. But how does the short sale process work and what are the rights of the homeowner?
First, the lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale. If the lender is willing to accept a short sale, then the lender becomes the seller of the home and the homeowner is relieved of the negotiating process with any potential buyers.
Before agreeing to accept a short sale transaction, the homeowner will complete a “hardship letter,” which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.
The lender will then look to the real estate broker to provide a price opinion by examining the condition of the house and the market value of comparable properties. The lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.
Next, the lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.
Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. The lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report, and the buyer hopefully got a good deal on a property.
Considering the complexity of the short sale process, you must be educated. If you are considering a short sale, make sure that you discuss your situation with a real estate lawyer. For a complimentary evaluation, call Adams & Associates at 888-724-9860 and we’ll discuss if a short sale is right for you.