#The Short Sale Process

What is a Short Sale?

What exactly is a short sale?  This is often referred to as being “upside down” on your mortgage or “under water” and is when a house is being sold for less than what the homeowner owes on it.   The lender will have to agree to accept less than what is owed resulting in a loss to the lender.  The decline in the value of the home results in negative equity for the homeowner.  The short sale process can be tedious and complex because each investor has a different short sale process.

The peak years for short sales in the US was during the years of the housing crisis: 2008-2012.  Since then, short sales in single family home sales has hit a lull.   Now with the economic un-surety brought on by the pandemic, many homeowners are showing concerns about what may happen in the housing market in the up-coming months.  So what is the short sale process?  The short sale process can be quite complex.  Each bank or investor has different guidelines.  If you think you may have to short sale your house, it would be very beneficial if you first find out who owns your loan.  

Who Owns the Loan?

Many homeowners think that the company that receives the mortgage payment each month owns the mortgage.  The truth is that this is just your mortgage servicer.  The loan can be owned by entirely different party(ies).  The three biggest mortgage investors in the USA are FHA, Freddie Mac and Fannie Mae.  One way to determine who owns your loan is to contact your mortgage servicer and request that information.  However if you think your mortgage is owned by Fannie Mae or Freddie Mac you can get this information by using the links below and following the easy prompts.

Fannie Mae: https://www.knowyouroptions.com/loanlookup

Freddie Mac’s : https://ww3.freddiemac.com/loanlookup

MERS ( Mortgage Electronic Registration System, Inc) is another company that provides an online tool https://www.mers-servicerid.org/sis/ which allows you to easily find the investor who owns your home loan. 

Once you have determined who owns your loan, you will also need to know the mortgage insurer who provides mortgage insurance on the house.  Even though each investor has a different short sale process, the servicer, investor and mortgage insurer will all need to agree to the short sale as well as to the terms of the short sale.  It’s easy to see why the short sale process can be very complex.

When to Start the Short Sale Process

You should contact your lender as soon as you start falling behind on your mortgage payments.  It will be helpful if you are able to secure a loan modification.  If that is not possible you should take an honest look at your finances and determine whether you will be able to catch up on the payments.  If you find you will be unable to catch up and you want to avoid foreclosure, then you will need to sell the house.  In New York, lenders start foreclosure proceedings 120 days after your first late payment.   Foreclosing on a property is a legal process which costs the lender money.  This is why it is important that you make a decision as soon as your financial situation becomes apparent.  The lender will be more willing to consider a short sale before it has invested a lot of money in the foreclosure process.

If you have decided that you need to short sale your house, you will need to request an authorization from the lender to short sell the house.  You will also need a competent real estate agent and real estate attorney to handle the transaction.  Short selling your house is a way to avoid going through the foreclosure process.  Getting the lender to agree in writing that no further action will be taken against you to collect the balance of the loan is very important.  If the lender agrees to forgive the remaining balance, it will be very helpful to you as you start to rebuild your life and your credit worthiness.

How does the Short Sale Process Works:

You will first have to prove to your lender that you suffered an economic hardship which resulted in your inability to make timely monthly mortgage payments.  Once your lender agree to the short sale, you will need to hire a qualified, local real estate agent.  The listing agreement will be the same as in a traditional sale.  The only difference is that the short sale process can be longer.  Many lenders will only start the short sale process after you are in contract.  Other lenders will approve the short sale prior to listing the property.   This is called an “approved short sale”.  Based on an analysis of the area homes in similar conditions, your agent will list and market your home like any other property.  The lender will require you to submit a lot of paperwork but as mentioned earlier, the short sale process varies from lender to lender.  With your co-operation and a knowledgeable real estate agent, the short sale process can take as little as 3 months and you can start the process of rebuilding your life.


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