Sometimes, when a homeowner can no longer afford their house payments, they can arrange a short sale with the lender. In a short sale, the lender agrees to accept the proceeds from the sale of the home, even though they are not enough to cover the full loan amount. Lenders often agree to this because, even though they get less than the amount the homeowner owes, they actually save money by not having to go through the costs of foreclosing on the homeowner. And the homeowner avoids foreclosure, thereby preserving their credit rating. A short sale can be a great solution for both the lender and the homeowner.
But if short sales are such a good deal for everyone, why are they so difficult to arrange? The first reason is the amount of paperwork involved. The lender wants to see documentation to confirm that the homeowner really can not afford to continue making payments. And once they make that determination, they need to assess the value of the home by hiring an appraiser or having a Realtor provide an estimate of value.
Once an offer comes in, the lender tried to ensure that the proposed sale is an "arm's length" transaction. They want to make sure the buyer has no relationship with the seller that would give the seller an incentive to offer the home on special terms. They also need to confirm that the buyer has the funds to afford the house. Sometimes the lender requires that the buyer be approved by the lender's underwriter.
Even if all this goes well, there can be complications. If the seller has a mortgage and a home equity line, both lenders must approve the deal. This can be extremely difficult when the sales price may not be enough to cover the value of first loan, let alone a second loan.
If you think a short sale may be the solution to your mortgage problems, contact your lender now. The sooner you start this process, the more likely you will be able to find a deal that works for everyone.
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