Some homeowners may find themselves in a situation where they owe more to the bank than their property is worth. There are a myriad of reasons that this can happen, and oftentimes the homeowner feels as if they have no other options than to let the bank take over their home. A viable solution to foreclosure is a short sale. Short sales can be a win-win situation where the homeowner is able to avoid a foreclosure on their credit and the lender is able to avoid having a foreclosed home on their books. If you or someone you know is underwater on their mortgage, call Dream Home Property Solutions, LLC today at 805-250-8335 to discuss how we can help you with the short sale process.
What Is A Short Sale?
A short sale is a when a homeowner sells their home for less than the balance of the debts secured by liens against the property and the owner cannot afford to pay the full amount of the liens. In this instance, the lien holders must agree to release their lien on the property and accept less money than the amount that is owed. Lien holders can include the primary mortgage, second mortgage, home equity lines of credit (HELOC), and Home Owners Associations (HOA). All lien holders being asked to accept a loan amount less than they are owed will need to approve the application granting a short sale. Unless it was specifically agreed upon by all parties, a short sale agreement does not necessarily mean that the borrower is released from their obligation to repay the deficiency amount that was not covered by the sale of the home. For those homeowners in California, California Code of Civil Procedure section 580e states that lenders cannot request a deficiency judgment against a borrower in California after a short sale has been approved.
A bank will normally grant a short sale when the seller is facing a hardship and there is not enough equity in the home to cover the amount of the loan. Examples of hardship could include medical emergencies, divorce, unemployment, or death. There is specific documentation that must be submitted to the lender and most banks have different requirements. Usually, a hardship letter is required where the borrower explains to the lender why they cannot afford to make the mortgage payments. Once all the required documents are gathered and filled out, they can be sent to the lender as a package. Once the lender receives the short sale package, they will review the package and evaluate it for short sale approval. Many banks have a pre-determined criteria that they use for approving the process. The bank will have to determine the current market value of the home, either through an appraisal or a Broker’s Price Opinion (BPO). Depending on the condition of the property and the level of expertise of the Appraiser, the lender’s determination of market value may or may not be a realistic number. This is the point where negotiation back and forth between the lender and any potential buyers will be critical. Depending on a number of conditions, a typical short sale can take anywhere between 45-120 days to complete.
Short Sale vs. Foreclosure
There are several advantages for homeowners going through a short sale as opposed to the foreclosure process. The homeowner would avoid a foreclosure on their credit report. A foreclosure can cause a drop in credit typically between 200 and 400 points while a short sale can cause a drop between 50 and 150 points, depending on how many mortgage payments may have been missed. The homeowner also does not have to go through the very public process of a foreclosure because a short sale can be handled in a more discreet manner. Also, homeowners are usually able to purchase a new home after a short sale sooner than if their home was foreclosed on. You can read this article on short sales versus foreclosure to learn more about comparisons between the two options.
Ventura County Short Sale Assistance
Although the short sale process itself is relatively simple, in reality, completing the process with the bank can be very long and arduous. Dream Home Property Solutions, LLC can assist you with the process and will be in constant communication with the lender and will keep you updated every step of the way. Give us a call now at 805-250-8335 to find out more about our residential real estate services.