Many sellers in today’s market are in a situation where they have to sell, but have a negative equity position. They owe more on the home than it is worth. Some are deciding to sell their home on a short sale. They are selling “short” of a full payoff of the mortgage.
The first step is to get approval from the mortgage company or companies to sell the home short. The bank will request financial information to support the short sale. Basically they want to see why the seller has to sell, and why they can’t pick up the loss themselves. They want to see the reason for the financial hardship, usually something like job loss, divorce, a relocation that is necessary to stay employed.
There are no hard and fast rules on how the process works. It depends on the lender, investors and the situation. The process usually follows these steps: 1) The seller feels out the financial papers to show the hardship, 2) The seller markets the home and the accepts an offer, 3) The offer is submitted for approval.
At step 3 is when the majority of the waiting starts. The bank usually orders a BPO (Broker Price Opinion), gets the approval of the investor for the price that the sellers accepted, and approve the short sale.
Once the short sale is approved, the sale goes forward like a “normal” sale. The buyer usually gets the inspection, negotiates any concerns from the inspection (though usually it is an “as-is” situation where it is a “take it or leave it” situation and there is no negotiating on the inspection), and gets mortgage approval to close.
If there is more than one mortgage, the 2nd mortgage make get nothing, a token amount small amount, or may ask the seller to sign a personal note to pay off the entire loan. The most important thing in a short sale is to make sure everything is “above board” and that full disclosure and transparency is maintained.
Whether a seller decides to go the short sale route or the foreclosure route is a personal decision, and they should seek legal advice if they aren’t sure what they would like to do.