Starting on November 1st, it will be easier for homeowners who have loans that are backed by Fannie Mae and Freddie Mac to get their short sales approved. That's on top of the millions of other American homeowners who have already gone through the short sale process this year.
Why have short sales been so popular this year?
Because they're an alternative to foreclosure. Sadly, nearly 25% of the existing homes that have been sold around the U.S. this year have been foreclosures.
Instead of losing the house in a foreclosure, homeowners are turning to short sales -- meaning they sell their homes at discounted rates. Banks agree to short sales in order to avoid the hassles and expenses of going through a foreclosure.
Just remember, short sales come with lots of red tape -- the most of which will come from your bank. After all, they have to agree to let you do one in the first place!
Short sales fall into two broad categories -- the Short Sale with Hardship and the Strategic Short Sale, where there is no hardship, per se.
Let's take a closer look at both options with an eye on how to convince your lender to grant the short sale.
Short Sale with Hardship:
Unquestionably, hardship is the leading consideration for a bank's acceptance of a short sale. Ultimately, however, you will need to achieve two important goals. First, you must convince the bank that an agreement to short sell your home is in their best financial interests. Second, you will need to confirm the details of the specific hardship that precludes you from continuing to pay for your mortgage.
The first point is not something that you should try on your own. If you are to convince the bank that a short sale is in their best interests, you will have to provide them with specific documentation that explains why.
Since you're not a real estate professional, you'll have to enlist help from a qualified realtor who specializes in short sales. Realtors possess the specific market knowledge and promotional expertise to attract qualified buyers and to negotiate sales in a timely manner. Suffice to say, your lender will be far more likely to negotiate when there is a professional involved than if you attempt to do this on your own.
But before you even begin to negotiate with your bank, speak with a qualified realtor to discuss the feasibility of a short sale. You might also seriously consider a legal opinion.
Your second challenge will be to present to the lender the specific details of your hardship. While a hardship can be subjective, generally recognized hardships include dire changes in employment such as a layoff, a pay cut, a sudden job transfer (whether voluntary or not), divorce, military service, a death in the immediate family, or sudden unintended financial circumstances.
You will need to prepare a Letter of Hardship which must include specific documents that support your hardship. These might well include bank statements, savings accounts, employment records, etc, depending on the source of the hardship.
And by all means, cooperate fully with your bank!
Strategic Short Sale:
Think of this as a short sale without a clear hardship. More often than not, strategic short sales occur when homeowners are "upside down" on their mortgages (or, when the balance on their mortgage is greater than the fair value of their home). There need not be a specific hardship since the owner can still afford the payments, but simply wants to emerge from the crushing financial burden of an upside down mortgage.
Again, your chances of approval for a strategic short sale depend almost exclusively on the financial interests of the bank. If the bank can be convinced that the costs associated are lower than those of a foreclosure, your chances for success are greatly increased.
Begin with consultation from a professional realtor, seek legal advice, and consult with a tax expert. When you are satisfied that the strategic option is a viable alternative, approach the lender with appropriate documentation and support.
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