A Short Sale Payoff Goes to the Lender

A short sale payoff is a situation in which a lending agrees to accept an amount that is less than the balance due on a mortgage. Banks and lenders may be willing to agree to a short sale because some financial hardship has fallen on the owner and a foreclosure is looming.

Who Should Short Sell?

An owner should consider a short sale if the only other option left is a foreclosure. A short sale mitigates the impact on a credit rating, as it appears as a pre-foreclosure action and that the debt has been cleared. Short selling is an involved process and the seller must have several documents assembled before proceeding.

What You Will Need

1. Hardship letter – In the letter, you will be presenting your case to the lending institution. You will need to explain what has happened to bring on such dire financial straits, and why short selling is in the best interests of the lending institution. Your issues need to be tied directly to economic hardship brought about through no fault of your own. Avoidable issues such as criminal activity will not be considered.
2. Tax returns and W-2 forms – The lending institution is going to want to know everything about your tax situation and how it reflects your overall financial situation.
3. Financial statements, bank statements, payroll stubs – Every aspect of your financial health is going to be studied. Remember, the lending institution wants to recoup as much of its investment as possible. If there is any possibility that denying a short sale is in their interest, they will not grant one.

Time Frame

Expect the process to take between two and four months. As negotiations move along, the bank may decline an offer from a buyer if the short sale payoff is too low, and the process will stall. During this time, the owner is still responsible for all making all mortgage payments.

Short Sales May Save Money

A lending institution agrees to short selling because they believe it is the best way to get as much of their mortgage as possible. Foreclosures are expensive for banks, and are time consuming as well. When all other methods are exhausted or not viable, a bank may consent to this action. But, they may not. If the offer is too low, or the owner is financially able to make payments, or any number of variables, a short sale will be denied.

If the owner uses an agent, the bank may require that he or she work at a discounted rate so they can receive an amount that is as close to the balance of the note as possible. The owner should not expect any money from the transaction because the short sale payoff goes to the lending institution.

Original Article found the Superpages.com