Short Sale 101

These days, you would have heard a lot about short sales or going short in the news media. But what is a Short Sale?

A Short Sale is when you need to sell your property but the amount owed exceeds the value of the property and you are asking your lender to accept a “short” payoff so you can sell and they can avoid the expense of a foreclosure.

For example: You bought your house in 2005. You paid $550,000. You carry a mortgage of $500,000. You can no longer afford to keep the house because of a legitimate hardship. You MUST sale or you will be foreclosed on.

The property is now only worth $400,000 (Market Value). Fortunately, you have a qualified Buyer willing to pay Market Value. After the expenses involved with selling the property there will only be $380,000 left over to pay the lender.

So you either have to bring $120,000 to closing or ask the lender to accept a “short” of $120,000 ($500,000-$380,000=$120,000). If the lender agrees, you have just completed a Short Sale.

In order to request a Short Sale from your Lender, you must have a hardship. A hardship is anything that makes it where you can not afford the payments on your house. A hardship may be the result of:

• Divorce
• Job loss
• Reduced income
• Disability
• Military duty
• Failed business

One of the key documents related to a short sale is the Hardship Letter. Whatever your hardship may be you will need to write a hand written letter telling your lender about it. This outline will help you prepare your hardship letter.

• First Paragraph: Explain what you want.
  We are requesting that you approve us for a short sale of our loan with your Company. We are no longer able to make the payments and have been trying hard to sell the property. We love our home but due to circumstances beyond our control we are no longer able to pay for it.
• Second: Describe your hardship.
  What led to your current financial problems and caused you to miss mortgage payments? What caused your hardship? Remember you are trying to get your Lender to accept a loss.
• Third: What you have tried to overcome your hardship.
  Have you been to counseling? Have you been job hunting? Are you cutting back on your expenses? Have you been making mortgage payments on your credit cards?
• Finally: Provide your contact information.
• Let them know they are free to contact you BUT you should ask them to contact your Broker. Sign and date the letter.

In the meantime, if you have a property that needs to be sold as a Short Sale, please contact me at 408-835-7743 or at alan@i2realty.com.