What Is a Short Sale?

In the real estate market, a short sale generally occurs when the homeowner is in financial distress and cannot make regular mortgage payments. In an effort to avoid the expensive and time-consuming foreclosure process, lenders may allow the borrower to sell the home for less than what is owed, accept the payoff, and release the borrower from the debt, provided they can successfully demonstrate financial hardship. The transaction is called a short sale because the proceeds of the sale are short of the outstanding mortgage balance. Short sales are more likely to occur when property values start to decline. If unforeseen circumstances like the loss of a job, a medical crisis, or a divorce make it difficult for you to pay your mortgage, and you would like to avoid foreclosure, you may want to consider a short sale. An experienced real estate lawyer will discuss the details of your case, determine whether you are eligible for a short sale, and assist you with every step of the process.

What Is the Difference Between a Short Sale and Foreclosure?

A short sale and a foreclosure are similar in that they both give homeowners who have fallen behind on their mortgage payments the opportunity to part with the home. However, the timeline and the outcome are very different. If you meet the short sale requirements, you will likely be able to stay in the house during the process. In addition, you may be able to purchase another home right away, with certain restrictions. Completing a short sale is a labor-intensive process, although the outcome is generally much more favorable than foreclosure, which destroys your credit, making it difficult, if not impossible, to purchase another home. In addition, you will likely need to declare bankruptcy as part of the foreclosure process.

What Are the Steps Involved in a Short Sale?

There are several steps involved in the short sale process, and it can take up to six months or more to complete the process once an offer has been accepted. The following are examples of the steps involved in a short sale:

 

• Consult with a range of professionals. To reach the best possible outcome from a short sale, it is in your best interest to consult with experienced professionals who understand every aspect of the process. For example, consider consulting with a tax professional who can advise you about ways to avoid paying taxes on the forgiven debt. You should also contact a real estate agent who has experience with short sales and can address all your questions and concerns about the sales process and other aspects of a short sale.
• Set the right asking price. You must set a competitive price for the short-sale property. The asking price should attract potential buyers while encouraging the lender to approve the sale. It should also reflect current market conditions and sold comparable properties in the area. Remember that while you and your real estate agent set the asking price, the lender has the final word and may not approve the sale if they feel that the price is too low.
• Lender agreement. For a short sale to proceed, the lender must agree to the sale. You will need to provide the following financial documentation to prove that you are unable to continue making monthly mortgage payments:
  – Copies of paystubs or other income documentation.
  – Copies of bank statements or other liquid assets.
  – A financial statement showing current assets and liabilities.
• Submit the required documents. You must be able to provide documentation proving that you cannot make your monthly mortgage payments at your current income and that you cannot contribute to the canceled mortgage debt balance. Examples of documentation include bank account balances, stocks, and proof of current assets.
• Submit a hardship letter. You will also need to submit a hardship letter to the bank explaining why you seek approval for a short sale. Your letter should highlight how the short sale will benefit the bank and why it is impossible for you to continue paying your mortgage. This is an important step in the short sale approval process. If the bank does not approve the application, you will be forced to foreclose on your property.
• Find a buyer. If the real estate market is experiencing a decline in home values, short sales will likely increase. Buyers who want to take advantage of low prices will be interested in short-sale properties. However, they will need to be flexible regarding the time frame since the lender approval process takes longer than a regular sale.
• Proposal for the bank. Once you have reached an agreement with the buyer, you will need to submit a proposal to the bank. This should include your financial information and a list of comparable properties showing that the sale price reflects current market conditions.

 What Are the Advantages and Disadvantages of a Short Sale?

There are several factors to consider when pursuing a short sale. The following is a list of pros and cons to keep in mind as you make your decision:

 

• Pros of a short sale:
  – You can avoid foreclosure.
  – The selling process is often easier.
  – It is less damaging to your credit.
• Cons of a short sale:
  Buyers who do not understand a short sale may consider the property defective and avoid a home viewing.
  – Certain aspects of the short sale process, including the listing price, are out of your control.
  – You may be responsible for declaring and paying canceled debt income to the Internal Revenue Service.
  – While not as damaging as foreclosure, your credit will still be affected for two to four years.

The Somerville Real Estate Lawyers at Lyons & Associates, P.C. Assist Clients with the Short Sale Process

If you are experiencing financial hardship that is making it difficult to pay your mortgage, do not hesitate to contact the Somerville real estate lawyers at Lyons & Associates, P.C. Our experienced legal team will discuss the different options that are available to you, determine whether a short sale is the best legal course of action, and assist you with every step of the short sale process. To schedule a free, confidential consultation, call us today at 908-575-9777 or contact us online. Our offices are located in Somerville, Morristown, and Freehold, New Jersey, where we serve clients in Somerset, Woodbridge, Morristown, Parsippany, Rockaway, Short Hills, Chatham, Randolph, Madison, Morris Plains, and Monmouth County.

• Category: Real Estate