A short sale describes the process of negotiating with your lender to get them to accept less than they are owed for your property. A short sale is an ideal alternative to foreclosure if you owe much more your home is worth and you no longer want to own your property.
Traditional loan modifications will not lower your principal balance enough to make any real impact on your situation. Your lender has no incentive to dramatically lower your principal balance because they would end up losing money on your loan. Regardless of how they try to paint the picture to the contrary, a bank is a business whose primary concerns are profit and to reduce loss. A general guideline to observe is: your lender will only agree to something if they are losing less money than they’d be losing if they foreclosed on your home. A successful short sale is one in which all parties emerge with the belief that they came out on top. The seller believes they escaped a toxic loan with an opportunity for a new start and minimal credit damage. The lender believes they made more money off the short sale then they would have from foreclosure. The buyer also believes they got a great deal on a property under market value.
Your lender doesn’t retain any concrete requirements for approving or denying your short sale. Ultimately, it comes down to how your negotiator presents your case to the lender and how the lender’s representative interprets that information. It’s all about getting the lender to believe that they are getting the best deal possible. Having a law firm negotiate your short sale is the best option because your lender will know you mean business and they will have to strictly abide by the law during the entire process. This immediately places you at a great advantage for the outcome of your short sale. Attorneys are very familiar with your state’s laws regarding mortgages and will use every tool accessible to them to negotiate a short sale in your best interest.
How Does a Typical Short Sale Process Work?
Before you contact your lender to discuss a short sale, you must first calculate how much your home is currently worth and for how much you can reasonably sell your home for.You also need to make sure you meet the following criteria:
– Your home is worth less than you owe
– Your property has a clear title with no liens on it, or all lien holders will need to agree to accept less than is owed.
– You have a genuine hardship that can be proven to the bank.
– You are able to sell your home at a realistic price (to attract buyers), subject to lien holders approval
It is important to meet all or most of these criteria because it’s difficult enough to find a buyer in this economic climate and almost impossible to find a buyer willing to purchase an overpriced property with liens and a seller whose bank won’t qualify them for a short sale. A short sale is very difficult to successfully negotiate because there are many variables that come into play and the final decision is ultimately that of the bank.
Attorneys can help sway the bank’s decision by threats of legal action from violations found in your mortgage. A forensic mortgage document audit will find any violations made during the origination of your mortgage. Over 75% of mortgages created after 2001 have one or more violations to the law. Your chances of a successful short sale will dramatically increase after your attorney presents these violations to your lender.
Here is a brief rundown of a typical short sale:
1. Contacting Your Lender – You must first call your lender to initiate the short sale process. This can be a very frustrating and time-consuming process. You will be transferred countless times and probably speak to at least a few representatives who are less than competent. It’s important to reach a knowledgeable supervisor who actually has the power to make a decision as soon as possible. This is going to be your contact person. The odds of a successful short sale will increase if you speak to the same few people every time, because these individuals will have extensive knowledge about your case and the power to make a decision on your behalf.
2. Letter of Authorization – You will probably be asked to fill out a “letter of authorization.” This letter allows you to share personal information with your lender. If you are working with a third party, it’s a good idea to give them a letter of authorization so that they will be allowed to discuss your personal information with your lender during the negotiation process.
3. Preliminary Closing Statement – This is where you or your attorney calculate how much you are going to receive from the sale of your home. It’s important to factor in closing costs, late fees, missed payments, commissions, and any other amount you will need to pay out after the sale. This estimate will give you a pretty good idea of your chances for a successful short sale. For example, if your calculations indicate that you will walk away with any profit, then your short sale is almost definitely not going to be approved. Conversely, if you’ll end up owing a few hundred thousand dollars after the sale, you’ll also likely not be approved. Remember, the banks will only agree to something that makes the most financial sense (even if it’s foreclosure!).
4. Proof of Income – You will need to provide your lender documentation of your income. You also need to inform them of ALL your assets, including: savings, additional properties, bonds, money market accounts, stocks, and so forth. It’s best to be forthright in this situation and inform the banks of all your assets. You will also need to provide bank statements, and in many cases you will need to explain any unusual deposits or withdrawals.
5. Hardship Letter – You will need to provide your lender a hardship letter. In the letter, you will formally outline all the reasons why you can no longer afford to stay in your home. Remember, actual human beings are drafting the decisions, so the sadder your story, the better! Your lender will take your financial situation into account when rendering their decision.
6. Comparative Market Analysis – This describes the process by which your real estate agent researches the values of homes around your property. In the current economy, home values are plummeting in record time. A Comparative Market Analysis is merely another tool to estimate the value of your home. It will compare similar homes in your area that are on the market, have been sold recently, or whose sales are pending.
7. Purchase &Listing Agreements – Once you find a buyer for your home, you’ll need to provide your lender the purchase and listing agreements. In turn, the lender will need to approve these agreements before your sale is made. The information in these agreements pertain to commission payouts, home insurance, and other expenses related the sale of a home. Your lender must approve, and has the right to modify any, of these agreements. Unfortunately, they usually do.
Clearly, negotiating a successful short sale is no easy task. It will require countless hours of phone time and inevitable frustration. It is highly recommended that you enlist the services of a professional to perform negotiations on your behalf. Smith & Gromann, P.A./CreditLawGroup is a national law firm concentrating on providing representation to consumers, including those affected by the current mortgage and debt crisis. We provide cost-effective and accountable representation on the matters of: Foreclosure Postponement,Loan Modification,Mortgage Document Audit,Refinance,Shortsale/Payoff,IRS Debt Negotiation,Credit Repair,Debt Settlement. We are a real law firm representing clients under Federal and State law. Don’t trust your future to supposed “consultants” and generic companies. With a law firm, you can be assured that your interests are properly represented on what are critical legal issues.