With rising interest rates and taxes, some homeowners will fall behind on their mortgages and many local markets will see a rise in distressed sale properties. But what are your options if you are in this scenario? The answer may be a short-sale transaction.

A short sale is a transaction in which the lender agrees to allow a homeowner to sell their property and pay the mortgage company less than the mortgage amount owed by the homeowner. In some cases, the difference is forgiven by the lender, and the homeowner should make arrangements with the lender to forgive the difference. If not, the homeowner may be on the hook for this. This amount is referred to as a “deficiency” judgment.

Short sale transactions are a very tricky area of Real Estate Law, and we always recommend working with an experienced Real Estate Attorney before beginning the process. But to get you familiar with the process, below are six quick tips for executing a Short Sale Transaction. 

Tip #1: Understand Your Bank Requirements

Having an experienced attorney on your side can make this step much easier. We recommend someone who understands all the requirements that different banks have. Some have more hoops to jump through than others, so a knowledgeable attorney is your best bet.

Tip #2: Justify the Price with Your Bank

You will have to bring the bank a price you are looking to sell the property for, as well as convince them it’s reasonable. Justify the price with fair market evaluation or comparative market analysis. This can be done by an appraisal, real estate broker, or salesperson.

Tip #3: Convince the Bank you Have a Significant Hardship

Short sale sellers need to draft a hardship letter to the bank. This should also be done with the assistance of a Real Estate Attorney.

You must show an income and asset statement – accountants can prepare this – as well as bank accounts and investments, to back up your hardship.

The goal is to get the bank to a point where they need to cut its losses. For this, you will want to show that your current hardship will persist for a long time, not a temporary thing.

You must also remember the documentation provided will need to be updated regularly.

Tip #4: Include Specific Contingencies in your Purchase Agreement

An attorney will need to draft the purchase agreement to include contingencies that say the closing will be contingent – or dependent – on the seller obtaining authority for a short sale transaction from the bank.

You will also want to include a contingency that the lender does not only need to approve the short sale, but also approve waiving the deficiency (the difference between the mortgage balance and sale price) to protect the seller.

If these contingencies are not included, the seller may be in trouble.

Tip #5: Start Early Communication with the Title Company

Throughout this process, the title company is your friend. So starting communication with them early will make sure all parties are on the same page and the process runs smoothly. They will want to pull the title work early, so communicating with them as soon as possible is a must.

Tip #6: Get Your Lender to Specifically Forgive the Entire Mortgage Debt, Including Deficiency

You will want to receive a specific (in-writing) acknowledgment from the bank that they will forgive the mortgage debt and deficiency amount.

Experienced Real Estate Attorneys | Fausone & Grysko, PLC

We hope you found these tips informational and give you a little more confidence in your potential short sale, should you ever need one. If you’re looking to sell a property by short sale and need the assistance of an experienced attorney, contact Fausone & Grysko, PLC online or by phone at (248) 380-0000.