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Short Sale 101: What Is It and How to Avoid Experiencing It

Written by Posted On Tuesday, 30 October 2018 17:50

The concept of a short sale isn’t new when it comes to purchasing properties. Many homeowners who are facing foreclosure resort to short sale for a variety of reasons. However, you need to work with a real estate agent to market and sell your home as soon as possible. Read on to know more about short sale and how you can avoid experiencing it in the future.

What Is a Short Sale?

Known as a pre-foreclosure sale, a short sale arises when you decide to sell your home for a price less than the outstanding balance on your mortgage. Meaning, you fall short of the cash required to repay the mortgage company fully.

In most cases, the mortgage lender agrees to a short sale to recover the portion of the mortgage loan you owe them. Home sellers like you are expected to provide several documents to the mortgage company. These documents include a letter indicating the reasons why you can’t repay your loan anymore, tax returns, and pay stubs.

From there, the bank will check your application and ask an appraiser to calculate the full value of the property against the offer in a short sale. When everything is set, they will either approve or reject your request depending on the circumstances.

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How to Avoid Experiencing Short Sale?

Before you find yourself requesting your lender for a short sale, here are the things to do to avoid experiencing it in the first place.

  1. 1. Apply for a loan modification – Before resorting to a short sale, home buyers like you can avail of a loan modification to help you stay in your home. Just complete the requirements needed by the loan servicer. Here are the steps:

  • First, submit documents such as a hardship letter, paycheck stubs, and other papers they want from you.
  • Stay in touch with the servicer and regularly check the status of your request.
  • Try to be more persistent especially in cases where you’re asked to resubmit documents.
  1. 2. Catch up on your payments – Neither you nor the mortgage bank wants you to sell the house at a loss. After all, what the bank wants is the exact money you borrow from them. Here’s how you can do it:

  • Catch up on your payments to avoid a short sale.
  • Ask the mortgage company about the different types of plans to help you meet your payments.
  • If you miss your payments, request the mortgage company to spread the past-due balance over many months.

By doing all of these, you’ll be able to stop a short sale from bothering you.

  1. 3. Rent your home to others – Instead of going through the process of a short sale, decide to rent your home for a fee higher than your monthly payment so that you can stay up-to-date on the mortgage. Follow these tips:

  • Ask the help of your friends to look for a prospective renter.
  • Find someone who is interested in a rent-to-own setup because you’ll get a large amount of deposit that can help you repay your past-due balance. The deposits paid by the renter will be included in the total sales price of the home should they pursue in buying the property.
  • If the renter doesn’t buy your property, keep the deposit for yourself or use it to pay for your mortgage loan.
  1. 4. Get your home foreclosed instead – You can avoid the experience of a short sale by allowing your home to go into foreclosure. The bank takes full ownership of your property, which means it’s no longer you who will sell it. The foreclosure process is as follows:

  • A notice of default through a certified mail will be issued by the lender to the homeowner. You’ll only have a specific period to pay the lender the past due amount and return the loan to good standing.
  • If you fail to pay within the stated deadline, the lender may either file for a judicial or extrajudicial foreclosure.
  • After the required time has elapsed, a notice of foreclosure sale stating the date by which you should vacate the premises will be sent to you.

Conclusion

A short sale isn’t the perfect solution for a homeowner who experiences a major financial setback, but it may still be an ideal option. Use the information presented in this article to help you decide on what to do when it comes to your property purchases. However, if you want to save yourself from the hassle should you resort to a short sale, make sure you complete all the required paperwork on time and work with a  short sale realtor to ease the process.

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