Short Sale - Real Estate Short Sales

What is a short sale?
A short sale, also known as a shorted sale, is what happens when you suffer a financial setback and can't keep up your mortgage loan payments, have to sell off your property to raise money, get a lower price on it than what you need to repay the required loan amount, and manage to get your creditors to accept less money than what you actually owe them.

Oftentimes, since risk and loss of capital are quite common phenomenon in their line of work, the lenders will probably understand your situation and will be prepared to be accommodating. It will help your case immensely if you are able to furnish sufficiently good reasons - economic conditions, conflicts, natural disasters, ill health, accidents, and other unforeseen circumstances - for your current financial difficulties, can provide concrete proof of your inability to meet the mortgage payments or any restructured loan payments, are not likely to get the required price for your property on the real estate market, and especially if the short sale is the only way to avoid or mitigate a total financial loss.

In other instances, like if a foreclosure may prove more profitable and will cover the mortgage amount and the legal fees, the lenders are less likely to accept a short sale.

In any case, before you decide on any option, you should get advise both from a qualified real estate lawyer and from your accountant about what will work best to your advantage. Bear in mind that the IRS will require you to pay tax on the debt relief you get from a short sale as this is perceived as an income, and that the lenders can legally procure the deficiency amount (which is the difference between what you owe the lenders and what you actually pay them) even if they have agreed to a short sale, either from you or from the buyer you find for your property.

How to go about making a short sale?
The first thing you can do is get in touch with the lenders, explain your inability to meet the mortgage payments, and ask them what their procedure is for a real estate short sale.

If you have decided to go for a short sale and are not sure about handling all the transactions on your own, you should hire a good real estate lawyer, a closing agent, a title company, a discount broker, or a real estate agent to help you with the entire procedure. Remember though that you will have to pay them a commission for handling your affairs. Ask them to give you an estimated current market value of your property and keep the Comparative Market Analysis at hand.

You will need to give them a written letter of authorization on your behalf. Without this, the lenders are not likely to discuss your financial information with them.

In your letter of authorization, state your name and contact, the address of the property, the loan reference number, the date, and your agent's name and contact information. You must also provide a preliminary net sheet, listing the amount you expect to receive on the property, the estimated closing costs, and receipts and/or proofs of any other property related financial transactions, proofs of your income and copies of your bank statements, and the Comparative Market Analysis, which will detail the current state of the property market and furnish the reason you are unable to sell off your property at its correct price. Include a cover letter explaining in detail your current predicament and how you got into it – this will pass muster so long you didn't get yourself into the soup working any shady deals.

If you have found a buyer for your property and have made a sales agreement, you must provide a copy of this to the lenders as well. The lenders may go over the agreement in detail and agree or disagree with the terms. If they don't like certain terms, they may renegotiate and ask for a change. Once all the terms are in accord, the lenders will authorize the real estate short sale. You can ask them if they will agree not to report your bad credit, so you will have an easier time salvaging your financial situation.
By Sonal Panse
Bouquets and Brickbats