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What is a Short Sale?
A short sale is when a homeowner owes more on a property than it is currently worth. This is often an alternative to a foreclosure. You enter a short sale when there is a negotiation between homeowner's mortgage company to accept a sale amount that is less than the full balance of the loan. If the sale of your home falls short of the balance of debts, leaving a unpaid balance known as a deficiency.
The process of a short sale requires a lot of cooperation from the listing agent, buyers agent, buyer, seller, title company, attorney and appraisers. Without effort and patience for all parties involved, a short sale will not be possible.
A short sale agreement does not necessarily release the borrower from their obligations to pay the deficiency on the loan.
In order for creditors to consider a short sale, most creditors will require the borrower to prove they are having economic or financial hardship that is preventing them for paying the deficiency.
All creditors that hold a lien against the real estate should be asked to take less than what is owed. This includes the primary mortgage, junior lien holders (second mortgages), home equity lines of credit lenders and home owners associations (HOA).
Many creditors have a loss mitigation department that will evaluate applications for approval utilizing pre-determined criteria for approving borrowers and the terms of the sale of the property. One portion of this process includes the creditor determining the current market value of the property by obtaining an appraisal, a Broker's Price Opinion or a Broker Opinion of Value. The most important part of this process is putting together a proper real estate short sale packing, including a detailed letter explaining their hardship and why a short sale is needed.
A short sale may take several months for the process from start to finish due to the multiple levels of approval.
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