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What Is a Short Sale and How Does It Work?


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A short sale, if done well, can allow you to walk away from your home free and clear, even if you’re underwater right now. For many homeowners, a short sale is the only option that allows them to avoid certain foreclosure.

==> What Is a Short Sale?

A short sale is when a bank agrees to let you sell your home for less than the value of your loan. They’ll accept the proceeds of the sale and forgive the rest of the debt.

In other words, instead of having to foreclose on the house and sell the house themselves at market rate, they’ll let you handle all of that – and just take the money.

Doing a short sale is still bad for your credit, but it’s much better than a foreclosure on your credit report.

==> What Does the Process Look Like?

Start by talking to your lender. Your lender can help you walk through the process and explain exactly what your bank is looking for in a short sale.

You’ll need to arrange a buyer. The bank won’t do this for you. Instead, you essentially have to come to the bank with the paperwork ready.

If you want to work with a real estate agent to list your property, you need to first submit a letter of authorization to your lender. This allows your lender to disclose financial details to potential buyers and your real estate agent.

Try to work with an agent who has short sale experience. Selling a home on a short sale is quite different than a regular transaction.

A short sale involves negotiating with both the buyer and the bank. Instead of going back and forth between a buyer and seller, the agent essentially has to get the lender to agree to a price.

Though selling a home with a short sale is trickier, many buyers are willing to jump through the hoops for one simple reason: they can often get a much better deal than buying through the normal channels.

==> Closing a Short Sale Deal

In order to close a short sale, you need to have all your documents in order, as well as the agreement of your bank.

You’ll need to draft a hardship letter, explaining why you can’t repay your loan any longer. The worse your financial situation seems, the better your chances.

You’ll need to prove your income, your expenses and your assets. Furthermore, the bank will want a rough projection of how much they can expect to receive after the short sale.

If you’re underwater on your property right now, a short sale can help you get out. You won’t walk away with any cash, but you can preserve your credit and get away from those crushing monthly payments. In exchange, you have to be willing to put in the effort to make the short sale happen.