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Stepping Stones to a Short Sale

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By : Greg Smith    99 or more times read
When people find themselves in the horrendous position of having to give up their home due to a financial crisis, the thought of foreclosure is extremely stressful. But there is one solution that may take some of the sting out of such a loss the short sale, or pre-foreclosure sale.

The process of foreclosure can take months to occur, so if a deal can be reached with the lender to eliminate this final point, it would be a win-win situation for everyone involved. Ideally, homeowners would enlist the help of a realtor who is familiar with the procedures involved in a short sale. There are many steps involved with a transaction like this, and having an experienced person guiding the way is most helpful.

Another positive point for choosing a short sale, if it is possible, is that homeowners are in control of the sale, not the lender.

This is not a simple process as banks are often reluctant to take less than what is due to them on current properties. However, if a situation is dire and the future does not hold much hope for getting back on track, the sooner homeowners approach their lender with the written request for a short sale, the better their chances are of acceptance.

The lender will want to know if homeowners qualify for a short sale through a Hardship Test. There must be a provable reason why they cannot keep their home. Questions may vary from state to state, but the basic parameters are as follows:

  • Did they lose their job since purchasing the home?

  • Did an accident or illness prevent them from working?

  • Were there overwhelming medical bills that came about since purchasing the home?

  • Did their job require a relocation to another state or city?

  • Has the interest rate on their mortgage gone up significantly, so it is a real hardship to pay the debt?

Homeowners may also have to check with their mortgage insurance company to see if a short sale would be accepted.

There are circumstances where short sales may not be accepted. Examples include:

  • Was all of the equity in the home used as a loan-to-self to buy other items?

  • Was the home purchased at the highest point of the market sales, and now it is worth less so the homeowners want to get out of their commitment?

Assets on hand

If homeowners have funds in savings accounts, CD's or equity in other properties, the lender will expect a contribution towards the loss in a short sale.
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