The National Association of Realtors indicates that approximately 35% of current real estate transactions are short sales. Meanwhile, one in every 355 residential properties is mired in the foreclosure process. That accounts for a lot of real estate and highlights the real estate investor’s need to know about the short sale process.
Not all lenders will agree to entertain a short sale. Basically, the lender is agreeing to take a loss. Usually this decision is submitted to a committee who must decide if the prudent move is to sell at a loss or hold the property until real estate values increase or if there is any other way to avoid a loss. The latter decision puts the lender in the unenviable position of maintaining and being responsible for a vacant home.
There are four conditions that advance the likelihood of a short sale.
· The property value has decreased – In today’s real estate market, it is difficult to find an area where this has not occurred, but it is a requirement for the lender. Lender decision makers react favorably to documentation supporting this claim. A current market analysis from a licensed real estate agent should be submitted to the lender.
· The mortgage is in default – If the mortgage is not in default but default is inevitable, the lender may well consider the short sale. This is commonly called the pre-foreclosure stage.
· The seller has suffered setbacks – the seller must have suffered hardship and submit a letter explaining the circumstances. The greater the hardship is the stronger the case for the lender approving a short sale.
· The seller has no assets – the lender must see that the seller is in dire financial straits with no other means to repay the obligation. The seller can strengthen the position by submitting up to date balance sheets. In some cases, certain assets will still qualify the seller for a discount form the lender.
If a seller cannot furnish supporting documentation for these four criteria, the chances of a short sale are dim. Experienced real estate agents can help structure factual support for these concerns.