What is a Short Sale?

A short sale occurs when the house is sold to avoid a possible foreclosure, auction or bankruptcy.  The lender also accepts less than the full amount of the mortgage due in order to avoid foreclosure costs.

So in other words, instead of buying from a seller, you are purchasing the property directly from the lender for a discount.  For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. A buyer can write an offer to the lender for $220,000, which is accepted as full payment for the loan.  This is a short sale.

WHY ARE BANKS WILLING TO TAKE SUCH A DISCOUNT?

There are several reasons banks will do this. First of all, banks do not like excess inventory and bad loans on their books from foreclosures.  Therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.

WHEN WILL BANKS APPROVE A SHORT SALE?

Banks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.

A few examples of a hardship include:  unemployment, reduced income, divorce, medical emergency, job transfer out of town, bankruptcy or death.

WHAT DOES THE SHORT SALE PACKAGE NEED TO INCLUDE:

The seller will request a financial package of forms from the short sale bank. While each bank has its own guidelines, the basic process is similar from bank to bank.

The seller’s short sale package will most likely consist of:

  • Letter of authorization, which lets your agent speak to the bank.
  • HUD-1 or preliminary net sheet
  • Completed financial statement
  • Seller’s hardship letter
  • 2 years of tax returns
  • 2 years of W-2s
  • Recent payroll stubs
  • Last 2 months of bank statements
  • Comparative market analysis or list of recent comparable sales

A qualified Utah attorney can help guide individuals in financial distress, bankruptcy or foreclosure through the process of finding the best options for his/her financial situations.