Friday, April 30, 2010

The Real Estate Short Sale Process By Ricardo Castro

The short sale process can be a daunting experience for many homes sellers. Not only are many faced with making a difficult decision. Now they have to go through a complicated sales process that will take much more time than a standard sale.

Well start by covering what a short sale is. That name practically says it all. A short sale is exactly that, a sale where the sale price of the home is lower or short, to cover the mortgages and expenses of the sale. An easy example of this is a homeowner who bought a home at the peak of the market, lets say for $500,000. Now with the economic downturn that homeowner is in need of selling the home but its now only worth $250,000.

The homeowner has an existing loan on the property of $450,000, the $200,000 difference would be the deficiency to settle on this debt and be able to sell the home.

The short sale process is the steps that have to be taken in order to have the Lender or lenders agree to forgive the debt and accept payment in full from the proceeds that can be gained from selling the home at the time of sale. Going back to our example, our lender would accept to receive $250,000 as payment in full, forgiving the $200,000 balance owed.

The process is simple but time consuming.

First, the seller decides to short sale. Many times this decision is reached after the homeowner is in default on mortgage payments but it's not necessary to be in default. Better yet if the seller is current. This can open the doors to short selling the home and buying a new home much sooner than actually being in default.

Once this decision has been made, you contact a trusted real estate professional, preferably well versed on short sales and the process. Many who know what they are doing will have support for the seller and possibly a legal team that can help. The best can offer this at no cost to the seller.

From here the short sale starts to take shape. The property is prepared for sale. Placed on the market at its fair market value, this is very important to ensure the short sale is approved. Once offers are negotiated, they are submitted to the lender or lenders with supporting documentation showing the lender(s) it's in their best interest to approve the sale Usually this is proven with a hardship letter written by the seller and supporting documents, if there is not enough income to support the continued payments of the property.

The time delays with the short sale process are usually due to the internal process the short sale must take once submitted for approval. The lender will verify value of the home by doing BPO's and possibly full appraisals, depending on the lender and the position they're in. If there are seconds or thirds, written agreements have to be secured from the other lenders, agreeing to the settlement amount being offered, if any, by the first lien holder.

The process usually takes from 45 to 60 days depending on the number of loans and the skills of the person contacting the lender(s), though it can take as long as four months.