Understanding Short Sales
Many people today still struggle with the concept of short sales and why they would need to sell their homes through the short sale process. Homeowners with mortgages commonly confuse short sales with the foreclosure process. However, a short sale and a foreclosure are far different and mortgage holders who owe more on their houses than they are worth need to understand the difference. The good news is that the short sale process is not hard to understand.
Defining Short Sales
The definition of a short sale is when banks and mortgage lenders agree to allow homeowners to sell their homes for less than they owe on their mortgages. Banks and mortgage companies only grant short sales to borrowers who are suffering some sort of financial distress, and the borrowers must owe more on their mortgages than the actual value of their homes. Typically, borrowers must be behind on their mortgage payments and facing the threat of default. Here is where the difference between short sales and foreclosures stands out.
How Short Sales Benefit the Sellers
Short sales prevent borrowers from facing foreclosure proceedings. If banks grant short sales to homeowners who are behind on their payments and facing financial distress, banks will place a hold on the foreclosure proceedings until the actual sale. In essence, a short sale is a preventative measure to an actual foreclosure where the homeowner loses their home and is still responsible for the balance of the mortgage.
How the Short Sale Process Works
Homeowners who want to pursue short sales to avoid the foreclosure process must first prove to the mortgage holders they are suffering from financial hardships. Examples of hardships include divorce, unemployment or reduced work hours, medical conditions or a pending bankruptcy. Homeowners then need to prepare financial packages for the mortgage holders, and each package contains information such as two years of tax returns and W-2s, the most recent payroll stubs and the last two months’ worth of bank statements. Although banks set their own guidelines for approving short sales, the basic procedures remain the same.