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The climate of the real estate market has changed over the past few years and if you are having difficulty making your mortgage payments, there are several options that are available to you. While most home owners are familiar with foreclosures, or walking away from the loan, there are several other avenues that can be taken that will not have the adverse impact on your credit worthiness that a foreclosure has. One of these avenues is a short sale. While it does go on your credit history, it is reported as a debt that was settled for less than the amount owed, rather than a debt that you walked away from.
What is a Short Sale?
A short sale means that you sell the home for less than the amount that you owe. While home owners typically lose money on this type of deal, it is well suited for those who do not have equity in their homes, home owners who have only owned their homes for a short period of time, or for those who simply do not want the black mark of a foreclosure on their credit report.
Let’s take a look at the short sale process and what you can expect if you decide to take this route.
First, you have to owe more on your home than it is actually worth in order to considering the short sale approach. You will need to get what is called a Broker’s Price Opinion. In most areas of the country, housing values dropped dramatically since the housing boom in 2004 and 2005. This means that most home owners are now in a situation where they do actually owe more to the bank than their property is worth.
What’s Your Home Worth?
If you are unsure of the value of your home, contact a broker and ask them to give you a BPO. If you or your real estate agent has already requested a short sale, the bank will provide the BPO for you.
Now, you will need to sign a Letter of Authorization. Your bank will supply you with this letter and ask you to supply financial documentation. You will need to have two years worth of your past income tax returns as well as two months worth of your current bank statements. You will also need to supply what is called a hardship letter that details your circumstances and an offer from a buyer for your property.
Writing a Hardship Letter
When you are writing your hardship letter, detail every facet of your current financial situation. You are essentially pleading your case to the bank as to why they should grant you a short sale and settle for less than the amount that you owe them. You may want to consult with an attorney who is familiar with short sales during this step. They can advise you further on what needs to be said in order for the bank to approve the short sale.
Lastly, you will need to negotiate the short sale with your bank. They will need to agree that they will not take recourse on the forgiven portion of the debt and sign off on the recourse loan. In some cases the borrower may ask for the seller to sign a promissory note for the balance. This is something that every homeowner needs to try to negotiate out of in the short sale. Once this is done, your short sale can be completed and you can move on with your life.
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Tags: buy, Buyers, Carlsbad, Credit, Foreclosure, Home, House, Real Estate, Realtor, Relocation, San Diego, San Marcos, sell, Short Sale, Short Sales
Posted In Blog, Buyers, Sellers, Short Sales
This entry was posted on Wednesday, January 13th, 2010 at 11:08 pm and is filed under Blog, Buyers, Sellers, Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.