What is a Short Sale?
Due to the crash in house prices, most homes in south Florida are now only worth 40- 60% of what they were at the peak, and about 50% of homeowners who have a mortgage now owe more than their home is worth. Add to this, the problems of adjustable rate mortgages (where payments jump up year after year), the unemployment crisis and numerous other factors that affect people’s incomes, it is impossible for a huge percentage of homeowners to be able to sell their home and pay off the bank.
Banks realize this and rather than foreclose on a homeowner, very often they will accept a payoff which is less than they are owed upon the sale of the home. This is what a short sale is.
The bank saves money because if they have to foreclose, they have to pay legal fees, take the property back and try to sell it as an REO, at which time they will get even less. The homeowner benefits because it enables them to avoid foreclosure with all the negative consequences that brings and they actually have a sale, even if it is a short sale.
To qualify for a short sale, you must provide evidence of financial hardship, and have little or no equity in the property.
Although it is now represents about one third of home sales in south Florida, a short sale is not a typical real estate transaction. It is more complex, involves more parties, requires skilled negotiation, especially if there is more than one mortgage or lien.
The first step in how to short sale is to find an experienced REALTOR® who will be able to get the bank to accept the short sale and find a buyer for your home.
The second step in how to short sale is giving the agent an authorization to speak to the bank about your mortgage.
The third step in how to short sale is writing a hardship letter that explains to the bank why you are unable to make your mortgage payments.
The fourth step is getting all your financial information together for the bank:
- paystubs
- bank statements
- tax returns
The rest of the short sale you should be able to leave up to your REALTOR®. They will do all the negotiation, find a buyer and close the sale.
Lastly, and most importantly, the reason most people want to do a short sale is to avoid a deficiency judgment. Make sure that your REALTOR® plans to negotiate this for you and that you get a deficiency waiver in writing form the bank before you sign off on the final sale.
Shirley Wise is a licensed real estate broker who has been specializing in short sales for the past four years in south Florida.