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gold dollarWhat Is A Short Sale And Why Bother?

A short sale can occur when a lender agrees to accept less than the total amount due on the mortgage.

The other alternatives to this kind of sale are bankruptcy or foreclosure. For homeowners who can no longer afford to keep up with their mortgage payments, these alternatives, destroy their credit and strip the family of their dignity.

But lets be clear, not all lenders will agree to a mortgage short sale or a discounted payoff. As well, not all properties or sellers qualify for selling short. Foreclosure or bankruptcy may be the only alternative.

It is vital that you get legal advice from a real estate lawyer and check the tax ramifications with an accountant. The Mortgage Forgiveness Debt Relief Act of 2007 allows for forgiveness under some circumstances, but the I.R.S. could consider debt forgiveness as income. Also, a lender may accept a short sale and still legally pursue a borrower for the difference between the amount owed and the amount paid. A lawyer can determine whether you and your loan qualify for a deficiency judgment or claim.

Each lender has their own list of requirements and documentation before considering a short sale so check and perform your own due diligence.

Call the Lender and speak to the person capable of making a decision.

Sign A Letter of Authorization waiving privacy concerns, so the Lender can disclose or discuss any of your personal information relative to your mortgage. Your letter of authorization should include:

  • Property Address
  • Loan Reference Number
  • Your Name
  • The Date
  • Your Agent's Name & Contact Information (This may be your real estate agent, your lawyer or any other party related to your loan.)
With your signed letter of authorization, the Lender will be able to cooperate more fully with the specified interested parties about your mortgage.

An Estimated Closing Statement shows the probable sales price and all the costs involved in sale, including loan balance, outstanding payments and late fees due. Be sure to include real estate commissions, if any. Your real estate agent or lawyer should be able to prepare this for you, if you do not know how to calculate these charges. If the closing statement shows cash back to you the seller, you probably do not need a short sale.

A Hardship Letter is a statement of facts outlining how you got into the current financial bind and makes a plea to the Lender to accept less than the full amount due on the mortgage. Be honest. Lenders will consider your plight for medical reasons, disasters or loss of your job, but will not be too sympathetic to criminal behavior or deceit.

Proof of Income and Assets Be truthful and honest about your financial situation and disclose all your assets. Lenders require proof that the debtor does not have the means to pay back any of the debt that it is forgiving.

Copies of Bank Statements The lender will require an explanation for unaccountable deposits, large cash withdrawals or an unusual number of checks, so it can determine whether these deposits and withdrawals are valid and honestly reflect your current situation.

Comparative Market Analysis (CMA). Sometimes markets change and property values decline. If you cannot sell your home for enough to pay off your lender, you must be able to substantiate this fact through a comparative market analysis (CMA). A CMA should indicate:

  • Properties for sale now (Active)
  • Pending sales
  • Properties sold in the past six months.
A real estate agent or an appraiser can prepare a CMA for you.

Purchase Agreement & Listing Agreement When you have an agreement to purchase from a prospective buyer, the lender will want a copy of that contract, along with a copy of your listing agreement. The lender will probably want to renegotiate commissions and may refuse to pay for termite inspections or home protection plans.

If you provide all the documentation required, the lender may approve your short sale. When negotiating your short sale terms, ask the lender not to report this transaction to the credit reporting agencies. There is no obligation for the lender to accommodate your request but it can't hurt to ask.

Loss mitigation is a viable solution for avoiding foreclosure and managing debt.

Loan modification may be the best alternative to a short sale.

Is your short sale caused by the Housing Bubble or the Credit Crunch?









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