At Citywide Mortgage, we realize that defaulting on your mortgage will be a very difficult and stressful decision and situation for you and your family. Many homeowners heading toward default consider foreclosure. However, they don’t realize they have another option: a short-sale. A foreclosure stays on your credit report for up to seven years and can make it difficult to obtain another loan. A short-sale may minimize damage to your credit record.
Why a Short-Sale Might Be Right for You
Banks often stand to lose a lot of money when a property goes into foreclosure. They too wish to avoid foreclosure, and a short-sale might be the best way to meet everyone’s needs.
Here’s How a Short-Sale Works
- Working with a Realtor, Citywide Mortgage receives an offer on your property before it is sold at a foreclosure auction.
- We then gather all the necessary financial information to support your situation, contact your mortgage lender, and get in touch with the lawyers and mortgage insurance companies involved in your case.
- The offer(s) received on your property, along with the all of the necessary paperwork is assembled and presented to the title companies, attorneys, mortgage insurance companies, public trustees, etc. for the approval of your short-sale.
- The mortgage lender then discounts the loan amount to reflect the adjusted market value.
- The property is sold and the original lender is paid-off.
- The homeowner receives no money but is released from the original liability.
Some of the Benefits of a Short-Sale
- The property is sold at fair-market value
- The loan is considered paid in full
- A short-sale typically does not damage a person’s credit score
- A short-sale may prevent a Sheriff’s Sale from occurring
- There will be a conventional closing (Tim, why is this a benefit?)
- The lender removes a non-performing loan from their portfolio
Do You Qualify for a Short-Sale?
- Do you owe more on your property than what it can be sold for in today’s market? (Remember to include real estate sales commission, closing costs, late payments, interest, etc.)
- Are you having difficulty meeting your month-to-month expenses?
- Do you not have the money available to cover the difference between what you could sell your house for and what you owe on it?
If you answered “yes” to these questions, a short-sale may be worth considering.
Other Items to Consider:
- How many mortgages are there on the property, and what are the balances?
- Do the loans involve third-party investors, (i.e., FHA, VA, Fannie Mae, etc.)
- Are there any other judgments or liens against the property?
- Are there any title issues associated with the property?
- Is a Sheriff's Sale scheduled or has one already taken place?
- What is the status of your personal finances?
- What is the approximate fair-market value of the property?
The Foreclosure Process
- Initial Delinquency: There have been several missed mortgage payments.
- Reinstatement Period: The period in which the bank allows you to come current with past due payments.
- Sheriff Sale: An open-bidding process for the property conducted at the sheriff's office.
- Redemption Period: All mortgage foreclosure sales are subject to a redemption period, usually 6 or 12 months. During this period, the mortgage must be paid in full if an owner wishes to keep the property. The length of the Redemption Period is noted in the sale notice.
- Redemption Ends: If the owner does not redeem the property during the Redemption Period, the property then is sold to the bidder who purchased it at the Sheriff's Sale.
The Short-Sale Process
- Letter Of Authorization: A letter from the property owner granting permission to Citywide Mortgage to discuss the account with the lender begins the process.
- Listing The Property On The MLS Service: The property is priced to generate quick offers based on fair-market value.
- Short-Sale Packet: Most lenders require that an owner submit financial documentation such as tax returns, pay stubs, etc. In addition, lenders ask for a letter explaining the hardship that caused the default of the loan.
Contents Of A Short-Sale Packet
Provided By The Owner
- Authorization Letter - Includes the lender account number and owner's social security number.
- Hardship Letter - A few brief statements that outline the events and situation which led to the default of the loan.
- Personal Financial Statement - A form is provided by the lender which is completed by the owner.
- Tax Returns - Federal tax returns for the previous two years.
- Proof of Income - Two most recent pay stubs for everyone named on the mortgage.
- Bank Statements - Most recent two months.
Provided by Broker
- Listing Agreement
- Purchase Agreement & Addendums
- Preliminary HUD1 Statement
- Buyer Approval Letter
The Listing Progression
- The listing agreement and all disclosures are discussed and signed.
- The property's description is entered into the MLS system.
- A signpost is ordered, a lockbox installed, and an inspection scheduled.
- Buyers and their agents view the property, and offers are generated.
- The offer(s) and short-sale packet are submitted to the lender.
- All mitigating factors are considered and a discount on the mortgage is negotiated.
- The lender issues an approval letter for the sale and the purchase agreement is fully signed.
- The title work is updated and a closing arranged.
- At the closing, the seller is released from liability for the property.
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