Selling a home for less than the mortgage takes a little more work than a regular home sale. With this information, sellers will understand what distinguishes a short sale, and what they should anticipate during the process.
What Is a Short Sale?
Although home prices generally trend upward, there are periods of time when the value of a home may drop. As long as the homeowner can continue making the payments as specified, this situation may correct on its own. However, if someone needs to sell a home that is worth less than the amount they owe, they may have to go through a short sale in order to eliminate the mortgage.
Why Are Short Sales More Complicated Than a Standard Home Sale?
Regular sales involve an agreement between the seller, buyer, and often a lender for the buyer's mortgage. A short sale introduces the owner of the seller's mortgage to the equation. Everyone must be in agreement with the terms of the sale in order for it to proceed. As a result, short sales can take longer and may have several failed contracts before they settle.
How Does the Short Sale Process Work?
When a homeowner realizes that they can no longer continue making payments on their mortgage, they should contact their mortgage servicer to ask about their options. Generally, the homeowner starts by telling the lender that they intend to seek a short sale. The lender usually has a number of requirements that must be met in order to approve a short sale. Sellers should gather the following:
- Information about the hardship that calls for the short sale
- Income and debt records
- Bank statements
- Preliminary estimate of the home's value, plus costs to sell it
If the lender approves the short sale, they will allow the seller to list the home for a particular price. In essence, a completed short sale means that the mortgage owner is accepting less money to discharge the mortgage debt. As such, their final approval is a necessity for any purchase contract to proceed.
Why Does the Lender Have to Approve the Short Sale?
Selling a home for less than it is worth means that the lender will shoulder some of the costs involved with the sale and lose some money on the total price of the mortgage. If the home has more than one mortgage through separate lenders, each one has to agree to the short sale because each stands to lose money from the process. As a result, lenders may cap the amount that a real estate agent can receive for selling the home, although they cannot change that amount after offers come in. They may also refuse to cover any expenses that the buyer requests, like upgrades or closing costs.
Are There Tax or Debt Implications in a Short Sale?
As a general rule, lenders want the home to sell for as much as possible. If they cannot achieve this goal, they may ask for the seller to pay the shortfall in cash or as an unsecured promissory note. In certain states, sellers may also have to count the shortfall as income on their taxes. Sellers should carefully consider these implications before deciding to do a short sale.
Choosing a Short Sale Agent
Choosing a short sale agent is not something you should take lightly. Short sale transactions can be extremely complicated. Because of this, it is very important you work with the right agent. Just because an agent has taken a few short sale classes does not mean they know what they are doing.
Below you will find three questions you should ask before working with any short sale agent. All of these questions revolve around their track record. If they can't answer these questions, find a different agent to work with.
1. How Many Years Have They Been Selling Short Sales?
You want a short sale agent that has at least 3 years of experience. In this type of situation, the more experience they have the better. Experience teaches the agent things they can never learn in the classroom or at a seminar. With experience comes the ability to anticipate certain problems and deal with them before they become an issue. If the agent also has experience in real estate, that's a big plus, as well.
2. How Many Short Sales Have They Closed?
Experience means nothing, if the agent has only closed two short sales in the last year. If you have to choose between an agent with 10 years of experience and 5 short sales in the last year, or an agent with 5 years of experience and 20 short sales in the last year, go for the agent with 5 years of experience.
They may not have been in the game as long, but obviously they know what they are doing. Agents who have closed more short sales will usually have relationships with a variety of different banks. Chances are they already have the short sale packages and know what each bank is looking for. Generally speaking, they will have systems in place that will streamline the short sale process.
3. Are There Any Red Flags With My Short Sale?
An agent who has sold multiple short sales knows what things a seller should watch out for. No agent can give you legal or tax advice. However, they can spot potential problems and guide you in the right direction.
When searching for the right Nashville agent to handle your short sales, make sure you ask the right questions.
Selling a home as a short sale may be an effective way for Spring Hill homeowners to discharge mortgage debt without going through a foreclosure. By knowing the answers to these questions, people will be better prepared to start the short sale process.
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