Sellers can avoid foreclosure and bankruptcy. Buyers can get a really good deal. Banks get the property taken off of their hands.
If you currently are unable to make the income to make the mortgage payments on your home, a short sale may help you dodge a declaration of bankruptcy or triggering your lender to foreclose on your home. A short sale takes place when your home loan's lender releases your property's lien and agrees to receive less money than you owe on the loan as a payoff. For example, if you owe $200,000 on your home, and you get an offer for $190,000, the lender may allow $190,000 as payment in full. Don't forget, however, that some banks will not accept a short sale, especially if foreclosure is more lucrative for them.
What You Need to Learn About Short-Selling Your Home
Most lenders have definite requirements concerning exactly what documentation they need from those looking for a short sale, though most will require a letter of authorization, where you give them permission to release your personal information. Think about writing your lender a memo granting your permission to speak with others about your loan. Put in your full name, the date, the property address, your loan number, and the name and number of the real estate agent who is helping you.
Your closing agent or lawyer should also prepare for you a initial net sheet. This contains the estimated closing statement with the sale price for your home that you think you will receive, all the normal costs of sale, the balance of the unpaid loan, your late fees and payments, and any commissions your real estate agent will receive. You will need to convey this to your lender also. Send along a hardship letter that specifies exactly how you failed to keep up with your payments, an honest report of your income and assets, together with any savings accounts, stocks, additional properties, or articles of real value. Send along copies of your bank statements, a comparative market analysis, if required, and copies of your listing and purchase agreements when your home is put up for sale, and later when you are given an offer. Once your lender has all of your documents, they will determine whether or not to approve your short sale.
Be Familiar with Risks of Purchasing a Short Sale Home
While the appeal of getting a great deal on a short sale is quite strong, make sure to investigate the property before making an offer. First, a lender is under no obligation to accept your offer on a short sale listing, even if the seller accepts it, just because the property is listed with short-sale provisions. Remember that a lender may have granted the short sale to the seller because the seller currently owes more money than the home is worth. This would not make the listing price under market value, but instead make the price of the home comparable to other properties up for sale. Do some public-records investigation in order to learn whether the home is in foreclosure, and find out how much the seller owes the lender. This will help you determine how much to offer. When a seller consents to your offer, send a copy of it to the lender for approval and make your offer contingent upon the lender's approval. Also, be sure you have the home inspected making your offer contingent upon a "passed" inspection.
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