Avoid Foreclosure - Short Sale Suggested Reading

There is no standard short sale process, each situation is unique. When a home owner is behind on mortgage payments, the lender will file a Notice of Election and Demand giving the homeowner 45-60 days (varies by state) to “Cure” before the Public Trustee Sale.  This is considered pre-foreclosure.  During this time period, or even better, prior to the Notice of Election and Demand, the seller should contact an experienced Realtor to get the short sale process moving.  The agent should recommend that the owner make a call to the lender’s loss mitigation department to see if they will consider a short sale.  Assuming the lender agrees to consideration, the short sale process begins.

The lender will need the following financial information from the home owner/borrower:

• Prior year’s taxes
• W-2s
• Current pay stubs
• Assets and liabilities
• Letter of hardship, explaining why the seller can’t make payments

The home owner/seller will enter into a listing agreement with the Realtor, be sure to make the listing period a minimum of 6 months, and will set the price of the home based on fair market value. This price will most likely be close to or below the amount the seller owes on the home, therefore creating the short sale. The agent prices at current market value to attract buyers, as an offer from a qualified buyer is an important first step in the short sale process. The Realtor will disclose in the MLS that the home is subject to a short sale and that all offers are subject to bank approval.

Once the home is marketed and when a buyer brings an offer, acceptable to the seller, the Realtor will submit the offer to the lender.  Expect a 4-9 week process of negotiation once the offer is received.  If the is already in pre-foreclosure and the public trustee sale date is fast approaching, sometimes the lender will postpone this date to help with negotiations on the offer.  If the lender accepts the offer, the home will go under contract and sell to the buyer.  If the offer is not accepted by the lender, the buyer can submit a better offer or choose to move on.  If the buyer does not submit an offer acceptable to the lender, the home stays on the market and the seller and agent start the home marketing and buyer seeking process again.

If the home does sell via short sale, there are still consequences to the seller, though possibly not as bad as the consequences associated with foreclosure.  Some potential consequences include:

• Deficiency judgment
• 1099/IRS consequences
• Notation on credit report

A seller considering a short sale should always seek both legal and tax counsel.  For more information or questions call Rachel at 303.442.4882 or email Rachel@MovingInBoulder.com