Sellers attempting to sell their home for less than their current mortgage value need to pursue a short sale. Most mortgage documentation allows for the seller to do this with the bank’s permission; however, many times a seller will either have to make up the difference with cash or the bank will simply forgive the rest of the loan. In the case of the seller making up the difference, it is rarely a problem with the bank. On the other hand, when the seller is asking the bank to forgive the difference the transactions becomes much more complicated.
Deal with Banks in a Short Sale
Before considering a short sale, sellers should first speak to their bank regarding the short sale process. There is a tremendous amount of work that can be done before the home even goes on the market and for everyone’s sanity, this work should be done in a timely fashion. Before calling, a seller should have their latest W-2s and their latest tax filings. If possible, get the home appraised to evidence the fact that the market value is below the current value of the loan.
It will be important that the seller be able to show hardship. Sellers should be prepared to show the bank exactly what assets and liabilities they have and what they pay each month. This would also include 401k and retirement assets. While the bank may not expect sellers to cash in their 401(k) to repay their loan, it will be another data point they use to consider the seller’s financial wherewithal.
Find a Short Sale Realtor
When all the documentation is in order, contact several realtors that have work experience with short sales. Short sales are always time consuming and a challenge. Having a real estate agent familiar with the process will minimize the headache of seller, who will most likely not have any experience with the process. Experienced short sell realtors can also proactively help sellers better market the property to prospective buyers interested in short sales.
When interviewing realtors, layout what has been done and layout the full financial picture. Remember, the realtor should be the seller’s advocate to the bank and to the buyer.
Don’t let the process of the short sale become overwhelming. Start with the understanding that it will take about six months or more and will require significant legwork on the part of the seller and the seller’s agent. Also, don’t forget to consult an accountant or real estate lawyer. Some forms of debt forgiveness are taxable and in some cases a successful short sale could result in a very large tax bill at the end of the year. Be smart and be patient.