So Tell Me.. What Exactly Is A Short Sale? A Brief Guide on The Process | Syracuse Real Estate
The housing market collapse happened almost 10 years ago, yet homeowners are still going through foreclosure and using the short sale process.
A short sale is the process of selling your primary residence for an amount less than what you currently owe your lender.
In essence this sale needs to be approved by all parties that are involved. Since the bank will be taking a loss, the lender needs to approve of the amount you are planning to sell and agree with the reasoning.
For example, you are a homeowner and your current loan balance on your primary residence is 150,000. In your homes current condition and state of the real estate market it is only worth 120,000. In this situation, your lender (bank) may approve a "short sale" and allow you to sell your home for lesser amount.
Short sales can be very complicated for all people involved in the transaction - from the buyer to seller to agent to bank. If this process is not handled properly, it can become a very long, drawn out process that can potentially take months to resolve & possibly not resolve.
Frequently Asked Questions on The Short Sale Process in Syracuse NY
Why would a homeowner sell using a short sale?
If you currently owe more on your property than it is worth, in other words "underwater". It will be difficult for you to the sales price you need to break even on the property. A property can not be sold on the open market for less than what is owed on your home without the approval of all parties involved.
How long do short sales tend to take?
This is a tough question to answer, especially in the state of new york. There are several variables involved in the speed and success of a short sale. Some lenders tend to be much more responsive and will approve short sales in as little as a couple weeks, where other banks can hold the process up for several months to a year or more. Typical short sale duration runs from about 3-5 months in length.
If the banks is taking a loss, why would they agree to a short sale?
This is a very common question. The majority of the time a homeowner wishes to use the short sale process is because they are trying to avoid foreclosure. You have to remember, the foreclosure process can be very time consuming and costly for lenders also. Typically, lenders want to try and avoid the foreclosure process as much as possible. As we all know, the foreclosure process in New York can take a very long time. This long period of time of accrued holding costs can cost lenders tens of thousands of dollars. The lender would then have to get the house ready to sell, depending on their goals and list the home on the market to try and get their money back.
So in some instances, the bank will take the upfront hit, rather going through a long drawn out foreclosure process, no telling how much money or time it will end up costing them. So essentially - a bank will agree to a short sale, if it is in the banks best interest to accept the short sale.
Who is eligible for a Short Sale?
Well lets get the obvious out of the way, you have to be a homeowner. However, homeowners looking to do a short sale are not always approved. There are certain expectations or situations that your lender will expect to be met before they will even consider this option.
Homeowner is currently behind on their mortgage payments, and does not have a solution to catch up or make up payments
Your home is underwater - or is worth less than what you currently owe your lender
Homeowner has lost their job or took a significant pay cut and there is no temporary financial resolution in the foreseeable future.
You will not be required to fit the mold of all of these rules. Every lender has different requirements that need to be met in order for them to move forward with a short sale. Like, I said the short sale process has to be beneficial for all parties involved - but especially has to be beneficial to the actually lender (bank).
How The Short Sale Process Works in Syracuse NY
The short sale is not always the most exciting event, actually it be a very difficult situation for all parties involved.
Just like with anything, there is a right way and a wrong way to deal with certain situations. I want you to understand that each lender will have their specific requirements, so this short sale process is not intended to be all encompassing guide of the process.
1) Work with short sale professionals - No matter what selling option, the homeowner chooses - make sure that you are dealing with local short sale experts who can guide you along the process. If you are selling the traditional route, be sure to hire an experienced real estate agent who works with short sales. If you want to work with a real estate investor, then make sure that investor is qualified and does consistent work with short sales. Short sales can become very complicated so make sure you are working with a professional who specializes in this niche.
2) Get an accepted Offer on the property - Before a bank will even discuss the option of a short sale, he will want to see a purchase contract that has been signed and accepted by both parties. So if you do decide to work with a real estate investor, the homeowner will be working directly with the investor. If you are listing with a short sale agent, they will be handling the contracts and paperwork.
3) Paperwork - I want to quickly discuss the short sale package that will be required from the homeowner to the bank. Once again, each lender's requirement's vary:
Letter of authorization, which lets your agent speak to the bank.
Preliminary closing statement
Completed financial statement or RMA
Seller's hardship letter
Repair estimate of property
2 years of tax returns
2 years of W-2s
30 days of payroll stubs
Last 2 months of bank statements
Comparative market analysis or list of recent comparable sales
I want to go into further details on some of the required paper work that is required. One of the most important documents that the homeowner will have to supply to the lender is a "Seller's Hardship Letter". This letter will explain to the lender the details of why they are having trouble and their current financial situation.
There is a property way to write this letter and specific points you should touch on. Here is a good article on how you should carry out this letter.
4) Bank Valuation / Appraisal - So now the bank is under the impression that you are attempting to move forward with a short sale. Before they will begin negotiations, they will want to know the full market value of your home.
Typically they will hire an appraiser or use a BPO (Brokers Price Opinion) to determine this value. Once the bank has an idea or range of what your home is worth and your situation fits their homeowner requirements, they will either accept, reject or negotiate your offer.
5) Negotiate with your lender - If you made it this far, you are in pretty good shape because this shows that the bank is actually considering moving forward with the short sale process. Once the negotiations begin, understand that the bank is not negotiating with the homeowner, rather with the buyer. These negotiations can take a long time and there is no time table for completion. Once we have a mutual acceptance from the lender and buyer, the process will begin to move forward.
6) Finalize the Sale - This is the last step of the process. Once negotiations have been completed and the bank has approved the short sale, the sale will then be moved on to the Title attorneys. At this point the transaction will typically close just like any other sale. The buyer will be required to bring a check to closing for the total amount of the sale and legal title will then transfer & the property will be owner by the buyer.
Conclusion | The Short Sale Process | Syracuse NY
Short sale's continue to happen all across the real estate world and is a better alternative then going through foreclosure. If you are the seller in this situation, make sure you consult the help of local professionals in your area who focus in this niche. If you are the buyer, understand the bank negotiation process and know if they are negotiating with you, they are willing to sell. Hopefully this article will help you guys better understand the short sale process and what it entails.
We would love to hear of any short sale stories from investors, real estate agents, homeowner or buyers. Every transaction is a little different and the more short sales you work with, the better understand of the process you will have. Just leave a quick comment below and we will get back to you shortly.
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