One of the most devastating and painful aspects our struggling economy has had on numerous Denver area homeowners is the possibility of losing their home to foreclosure on top of other financial woes. There are a few options a distressed homeowner can pursue to avoid the foreclosure. One that has become the most popular and proven to have the highest rate of success is a short sale.
So what is a short sale and how does it work? A short sale allows a homeowner who cannot make the mortgage payments and owes more on the loan than the property is worth in the current market to sell the property at current market value. This requires the approval of the mortgage company holding the note on the property because they have to agree to accept less than the amount owed at closing and release their lien on the property. Most lenders agree to a short sale under these circumstances because they are still much better off than if they had to foreclose and take possession of the property.
Although there are a variety of complex issues that may come into play, an experienced short sale specialist realtor will be able to guide you through the short sale maze to a successful short sale transaction. Here are the basic steps of a short sale:
- Homeowner lists the property for sale with a short sale realtor (hopefully an experienced one)
- Lender reviews hardship letter and financials to satisfy themselves that the homeowner has a true and legitimate hardship.
- Lender orders and reviews a 3rd party valuation (Broker Price Opinion or Appraisal) of the property to make sure they are getting a fair market price.
- Lender approves the short sale transaction to close.
- Homeowner is allowed to sell their own home and avoid foreclosure rather than having it taken away in a foreclosure action and may walk away from the closing table with money for relocation expenses.
- Lender reports as a paid account to the credit bureaus instead of a foreclosure.
As you can see there are some major benefits to a short sale over foreclosure. There are other potential variables depending on circumstances and the lenders involved. For example in most cases lenders will forgive the deficiency (difference between the amount owed on the loan and the amount the lender receives from the closing) but in some cases the lender will require a homeowner contribution or promissory note to be signed. This is another reason it is very important to have an experienced short sale realtor negotiating on your behalf. If you are a homeowner in the Denver CO area considering a short sale, feel free to contact me any time for a free consultation about your particular situation. All of my services are free to you and paid for by your lender at closing.