The Short Sale is defined as a sale in which the homeowner with a mortgage or mortgages owes more than the property is worth in today’s market. Short sales by their very nature are complicated and unique to a specific mortgage holder (or holders) and a specific property.
The short sale may begin initially without any bank involvement. The seller lists the property at a market price determined by his agent, in comparing it to other similar properties that have recently sold in that neighborhood. When a buyer is found, a short sale offer to purchase contract is written and then signed by the buyer and the seller. An important piece of the short sale contract is a document called a Short Sale Addendum which defines the short sale contract as being dependent on the approval of all the mortgage holders. It will be a three party contract – buyer, seller, mortgage holder.
Some of the key attributes of the short sale are:
• The short sale list price reflects seller/agent opinion of market price, but this price may not be approved by the Bank.
• The first step after a buyer/seller contract is signed is for the mortgage holder (Bank), through its loss mitigation process, to determine whether or not a specific seller qualifies as being a short seller. To qualify as a short seller the mortgage holder will write and submit to the lender(s) a “hardship letter” that specifically identifies why the seller can no longer afford to pay his mortgage. Common reasons would be loss of income resulting from a job loss, death, accident or illness.
• If the seller has no other disposable liquid assets that can be sold and the Bank determines that the best solution to the problem is to allow the short seller to sell his house, then the Bank will determine its acceptable price by hiring an independent appraiser. Once the appraisal is completed and the price is determined, it will become the new contract price. The contract previously agreed upon between buyer and seller will be voided by a modifying Counter Offer stating the Bank’s acceptable price.
• The buyer will either cancel the contract or accept the Bank’s newly established price. If the buyer agrees to the price, the contract goes forward to closing. If the buyer does not accept, then the seller will start again by relisting his house at the newly established price.
