What is a Short Sale?

The very basic definition is when a home is selling “short” what is owed to the bank.  However, the other significant piece is that the bank has to be willing to take less.  What this means is that the seller has to prove to the bank that they are incapable of making the payments and are about to go into default or already have.  For a bank to agree to take less, it usually requires a certain amount of paperwork filled out by the seller to prove their financial status.  This may vary from bank to bank but usually entails submitting W2s, bank statements etc.

Why do a Short Sale?

Every good financial advisor will tell you that, if you have to miss a payment on one of your loans, it should never be a mortgage payment.  Missing this payment has the biggest impact on your credit rating.  While a short sale will affect your credit, it is not as devastating as a foreclosure.  With a foreclosure, as with a bankruptcy, it will take many years before you purchase another home and that is with your credit restored.  With a short sale, you could turn around a buy a less expensive home and not wait the two years if you have improved your credit score or maybe with someone cosigning a loan.

How to do a Short Sale?

Time is of the essence.  If you are committed to keeping your credit as best you can and not go to foreclosure, you should consult a realtor immediately and tell them the situation.  You don’t have time to sell your home without a realtor who can get it the maximum exposure including having it listed on the multiple listing service (MLS).  In this market, homes can be on the market well over a year.  If you try to sell it without disclosing this to your realtor, it may delay getting the cooperation of your lender and completing the necessary paperwork.  The process, including the redemption period, can take 9-12 months.  If you wait until your home goes to auction, the time is significantly reduced.

Second, interview a realtor and ask about their experience with short sales.  Ask how they will market your home including the resources they use on the internet.  Over 80% of buyers utilize the internet before they consult a realtor.  Above all, make sure you can work with your realtor.  This is a difficult time in one’s life when you face losing your home and you want someone who is empathetic and listens to your concerns.

What can you expect in the months to come?

Depending on where you are in the default of your mortgage, the process can be at a couple of stages before you have to vacate your home.  It is advisable to contact the bank when you know you can no longer make your payments and see if they can work with you.  Banks do not want to own Real Estate.  Their ability to finance loans depends of not having inventory on their books. Some banks may work with you depending what has caused your current circumstances.

If you have just missed your first mortgage payment you may be contacted by the bank to evaluate your situation.  After missing two or more mortgage payments, the bank will send notice that they are proceeding with a foreclosure.  You should keep all notices, names and numbers of the people you speak with at the bank.  If you proceed with a short sale, this information will make it much easier for your realtor to contact the right people at the bank.  Once you are served the notice of foreclosure, it must be published in the newspaper for four-five consecutive weeks and then it goes to auction.  Auctions are held regularly in a specific location within the county.   

Once your home goes to auction (sherriff's sale) and the bank has taken possession, Michigan allows sellers a six month redemption period in which time you could buy back your home.  For farms and large parcels of land, the redemption period can be 12 months.  While unlikely in the current market, this does allow you some time to still pursue a short sale.  Many banks will continue to work with a realtor to complete a short sale during the redemption period.  They may offer you “cash for keys” to vacate earlier and forfeit the redemption period.  The key is that they cannot force you to leave until the redemption period is over.  Then, if you have not left, the eviction process will begin.

 If you have questions or need more information, please  contact us.

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