Just a few years ago, many Realtors had never even heard of a short sale, let alone selling or negotiating one. Now, short sales can be even more common place than standard sales! But that doesn’t mean that just any homeowner can sell their home using a short sale. There have to be certain conditions in place for the home’s lender to even consider the short sale.
First of all, the homeowner has to have some sort of hardship – job loss, illness, divorce, job relocation, etc. This change in their lives will have to be something that will have changed their financial situation, making it difficult to continue making their home loan payments. Anyone who wants to sell their home to move to another neighborhood “just because” is out of luck. In this situation you will have to either wait until the amount owed on your home is less than what you can sell it for, OR you can make up the difference yourself from your own funds.
In a short sale, time is always of the essence because as each month goes by that the Seller cannot make another home loan payment, their credit gets dinged. So the first step in facilitating a quick sale is for the home to be priced fairly, at a price that Buyers will be willing to pay.
When a fair offer has been received, it will be submitted to the bank, along with a “short sale package”. The short sale package is a collection of information that the Seller will provide, containing among several things, copies of their recent tax filings, W2s, recent pay stubs, recent bank statements, and a personal financial statement (list of their monthly expenses and debt). This information will be used by the bank to get a “financial snapshot” of the homeowner. Obviously, if a Seller is requesting a short sale where their monthly net income vastly exceeds what their monthly loan payments are, then the bank would be unlikely to agree to the short sale.
Also part of the short sale package is a “hardship letter”. Even though the bank is all about the numbers, they do understand that situations arise in their clients’ lives that make them unable to make their payments. The hardship letter offers the opportunity to the Seller to explain that situation in their own words. No one ever decides one day “I’m not going to make my home loan payments, just for kicks.” Instead, there is usually a reason which the Seller explains to them in the hardship letter.
Seeing as time is of the essence, it is important for Sellers to realize that they need to collect this information quickly, ahead of time, so that is it ready to be submitted once they receive an offer. The Buyer will also feel comforted knowing that the short sale package is ready to be submitted along with their offer, as they too want the short sale to proceed as quickly as possible.
Read the next article in this series, Short Sales 101 – Part 3: Not All Short Sales Are Created Equally.