Although there are no specific rules that will determine whether or not you’ll qualify for a short sale – or even whether or not your lender will approve the sale once a potential buyer has made an offer on your property – there is typically a set of general steps in which a short sale process will follow. These include:
- Proving Financial Hardship – The first step in the short sale process is proving to the lender that you are in a state of financial hardship. This usually includes being unable to make your mortgage payments. In certain situations, a borrower may have already defaulted on some of these payment obligations. Some lenders may require specific proof of your financial hardship, such as providing them with pay stubs and / or copies of your tax returns.
- Property Value Determination – After you have shown the lender that you’re having financial hardship, it will then be necessary to determine the property’s value. This is generally done via a Broker’s Price Opinion (BPO) or a Comparative Market Analysis. In some instances, the lender may also want to obtain an official appraisal of your property.
- Locating a Buyer – The next step is to find a purchaser for your property. The potential purchaser must submit a purchase offer, which is subsequently submitted to your lender for its approval. Oftentimes, a short sale is not even considered until a qualified purchase offer for the property has been received.
- Approval – After the lender has acknowledged your financial hardship and a purchase offer has been received, it will be up to either you and / or the entity representing you (oftentimes a real estate agent or broker who specializes in working with short sales) to work with the lender and convince them that it’s in the best interest of the lender to move forward with the sale. Many lenders may have more than just one level of approval. It is important that you not consider the short sale approved until you have received written approval from the lender. Once approved, the settlement agent can then start to prepare the necessary paperwork for closing.
There are many moving parts to a short sale – and a myriad of things that could go wrong. Because of this, it is always in your best interest to have an attorney review your documents prior to finalizing the deal. For more information or a free consultation, contact us.