Understanding The Short Sell Process

Short sales were not in the public picture a few years ago when the prices of house were just booming. However, they have become a phenomenon of study, experimentation and practice in this current debacle and upsurge of mortgage delinquencies. Many people are therefore in a state of dilemma as to whether to engage in the short sell process as a possible solution to the deadly foreclosure. That is basically why an understanding on the short sale process is essential.

But what is a short sell in the first place? In real estate, a short sell is the process through which a lender of some property allows the property to be sold for an amount less than the total amount that is due on the mortgage loan. There are three major parties involved in the house short sell process:

  • The lender (bank in most cases)
  • The buyer
  • The seller (homeowner)

This is the short sell process:

(a)   The seller or buyer contacts the lender in order to discuss the possibility of a short sale. The lender then determines the process of the short sale by deciding on the procedure to take.

(b)   The seller or homeowner then writes a letter that authorizes the bank to release facts about the mortgage loan to the agent or the buyer.

(c)    The lender reviews the statement of settlement and proposes a selling price for the house. The lender also indicates and itemizes the remaining expenses that need to be paid on the loan, real estate commissions and any other fees associated with the house short sale.

(d)   The seller then does a letter that explains all the financial difficulties that they are facing. This letter is sometimes called a hardship letter. The lender will then, in an attempt to validate the seller’s financial situation, look at the investment accounts, bank statements and other financial records of the seller at the lender’s disposal.

(e)   The value of the house needs to be correctly established before a short sale. The lender normally hires the services of a real estate broker to provide a possible opinion on the price of the house by looking at the condition of the house and then comparing it with the market value of properties that are comparable to it.

(f)     The lender goes through the purchase agreement in order to find out if the amount stated and the commissions indicated are reasonable. If the lender is satisfied with these details then the house can be short sold.

The short sale process can be lengthy because one has to contact several people here and there before striking the deal. As such, several documents and a virtue of utmost good faith from the seller are required. Nevertheless, if the short sale process is carried out carefully and the steps followed correctly, there are benefits accruing to all the parties involved:

  • The lender sells the house at a fair market price without having to wait for several months.
  • The buyer obtains the house at a relatively lower price than its market price.
  • The seller gets out of the house honorably and doesn’t get their credit report damaged because they can go ahead for another mortgage just after two years.

 

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