| Definition of a Short Sale | |
A Short Sale is a real estate transaction in which the lender holding the mortgage agrees to take a short payoff in order to release the mortgage on the real property for less than the amount of the current payoff.
For example, consider that a homeowner with a mortgage is late on their loan payments and is facing foreclosure.
There can be a short sale if the following all occur:
- Consent of the homeowner to make an offer to the lender for less than what is due;
- The offer is acceptable to the lender;
- The payment which is less than the total amount due is accepted as full payment for the loan.
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| The steps which lead to a Short Sale | |
- Identify homeowners who are in default on their mortgage loan (preforeclosure status)
- Establish a working relationship with the homeowner and get information from them, i.e. data about the property, the homeowner themselves, the mortgage holder, and any other liens that they know about on the property. Obtain the homeowners' written authorization to be their representative
- Establish a working relationship with a possible investor/buyer of the property and learn what they are willing to pay for the real property.
- Call the lender and inquire about the possibility of a short sale agreement. Usually, the "Loss Mitigation Department" will handle these types of requests. Inform them that you represent the homeowner, or fax/e-mail them the signed authorization; the representative will usually want basic info about the property, the homeowner and the proposed deal. They will also want to know the value of the property and the financial situation of the homeowner. The goal of this is to request a short sales or workout packet, which will contain all of the forms and the lenders' specific procedures to close the deal.
- The next step is the BPO: Broker's Price Opinion. Lenders generally hire local real estate brokers or appraisers with whom they already have an established relationship with to evaluate the property in the foreclosure process prior to selling them at public auction. They may have already done this step, prior to you contacting them about the possibility of a short sale agreement.
- Next comes the Hardship Letter from the homeowner. Most lenders will request this to detail the reasons a homeowner has not made their mortgage payments. This is a fairly extensive request, and may require the homeowner to submit pay stubs, tax records and other personal financial records.
- Write the purchase agreement between the homeowner and the buyer.
- Now call NorthStar Title. The lender generally will require the contract and a preliminary HUD-1.
- Finally, wait for an answer. It usually takes about three to six weeks to receive an answer from the lender; it's always good to call the lender to ensure that they have received the information. If the auction date for the property is approaching, ask the lender to extend it until there has been enough time to consider the offer.
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