What is a short sale approval?
In a nutshell, the short sale approval process is getting your bank to let you sell your house for less than you owe.
Why would anyone want to sell their house for less than is owed? Several reasons, the most common being the homeowner can’t afford to pay the mortgage any longer and the house is worth less than what is owed.
If the home is worth more than what’s owed, a short sale approval will not happen. The bank reasons you can sell the house for at least what is owed, possibly a bit more. So, there is no reason for the lender to take a loss on the mortgage.
If you qualify for a mortgage modification, the bank may not allow a short sale.
If there is more than one lien holder on the property, then you’ll have to do the short sale approval process with each mortgage holder.
Not all lenders will allow short sales, reports Ciele Edwards in the SFGate. Find out if your bank will even allow a short sale. If they will do so, then you can move toward proving you need to have a short sale.
What is the process of a short sale?
The next two-part action is the first real step in the short sale approval process.
PERSONAL ECONOMICS FOR SHORT SALE APPROVAL
How do you get approved for a short sale?
To receive short sale approval, you will have to prove you can’t make the mortgage payment any more.
Some reasons for this are:
- Lost job
- Pay cut
- Forced move to another community
- Medical issues
You’ll need to bring proof of this to the bank. Paycheck stubs, a layoff notice, in the case of the military and a forced move, transfer papers, or proof of the medical condition and a reasonable expectation of what bills will be coming down in the future.
Making bad financial decisions will not qualify you for a short sale. Say you go out and buy a recreational vehicle. A month or so later, you discover making the payments on the RV and the house is leaving you short every month. The bank won’t care.
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HOME VALUE
The bank wants proof that the mortgage is underwater. This is just as important to the short sale approval process as proving you can’t make the mortgage payments.
Just saying the home is worth less than what is owed is not enough. Using the county tax records won’t work either as many tax offices tend to put a slightly lower value on a house than what it will bring in a fair market sale.
The best way to fix a value on the house is to have a real estate appraiser give you a certified appraisal. The bank will take this at face value. You’ll have to pay for this, how much depends on the appraiser. You can ask around to get an estimated fee.
Another option in the short sale approval process is to do some research at the courthouse.
Find similar homes in the community that were sold. Get copies of the deed work showing the sale price. You can even include other short sale properties and foreclosures that later sold.
NEGOTIATE
The whole object of a short sale is walking away without having to pay out any more money.
The catch here is some states allow a bank to come after you for a deficiency judgment. This is the difference between what is owed and what the house sells for.
If your state does not allow deficiency judgments or your mortgage agreement prevents it, then you don’t have to worry about it.
If your state and your loan allow this, you need to negotiate. You’ll have to convince the bank that pursuing a judgment through the courts is going to be a bad idea.
If you’ve already proven you can’t make mortgage payments, then sidestepping a deficiency judgment should not take a lot of work.
WAIT
How long does a short sale take?
Short sale approval generally doesn’t happen fast. The bank spends time evaluating offers, the property and your financial situation.
[I]t can still take several months for the process from start to finish, often requiring multiple levels of approval,” states a Wikipedia article on the short sale approval process.
SUMMARY
To get a short sale approval, you will have to prove to the bank that (for a valid reason) you can’t make your mortgage payments anymore, and that your home is worth less than what is owed.
Also, check to see if your state allows deficiency judgments or not. If your state allows deficiency judgments, then your bank could come after you for the difference between what you owe and what you sell the house for. However, the good news is that there are ways to avoid a deficiency judgment.
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