Short Sale Process

With the recent steep decline in the housing market, many homeowners have found it necessary to become familiar with the short sale process. It’s a result of falling home prices, which have left many homeowners “underwater” or owing more on their mortgages than their property is worth. In real estate, a short sale is the sale of a property at a price lower than the amount of money the current owner owes on their property loan. Though neither the lender nor borrower gains anything from a short sale, it equates to less financial loss for the lender than foreclosure and provides a way out for the borrower. To really understand the short sale process, you must delve into the more detailed aspects of it.

Things you'll need:

• Contact information for financial institution
• Patience

1. No matter who the lender is, the first step in the short sale process is communication. In private real estate, this is usually as simple as calling the financial institution that the homeowner got their mortgage. They’ll explain their short sale policies to the borrower and tell him whether there are any other options worth pursuing first. If none of these options are viable, the short sale documentation is sent to the borrower.
2. In the second step, the borrower discloses financial information to the lender. This is typically the lengthiest part of the short sale process. The short sale documentation sent to the borrower is typically very long and very detailed. Once sent, it is carefully reviewed by a so-called “loss mitigation” team that works for the lender.
3. If the documents prove that a short sale is the best way to prevent foreclosure, the lender will request a Broker Price Opinion. In essence, this is just an appraisal made by an official broker on the value of the property in question. Lenders use this appraisal to determine the likely market value of the property and calculate their potential losses on the short sale.
4. In the final step of the short sale process, the lender informs the borrower whether their short sale request is accepted. Their acceptance is determined through a combination of the property’s appraised market value and the financial information provided by the borrower. In the event that both parties agree to short sell the property, the legal term for the agreement is “consent.” From here, the borrower is free to sell their property, with all proceeds from the sale going to the lender.
5. In some cases, the lender may forgive the difference in amount between the sale and the rest of the mortgage. This is not true in every situation, however. So even though the short selling borrower is guaranteed to save their credit score from the detrimental effects of foreclosure, they are not necessarily off the hook for the rest of the loan.