If you are an agent that has never worked with borrowers in financial distress or if you need a refresher on pre-foreclosure options, then this blog post is for you. One of the questions that our short sale negotiation team gets asked quite often is “How do I know if my seller needs to participate in a short sale?” We’ve got the answers right here!
A short sale in real estate is the sale of a property where the owner of the home owes more in debt than the current sale value of the property. While many short sales involve mortgage loans only (where the mortgage or mortgages total more than the home’s value), some properties may have from other sources that increase the total amount required to be paid in full when the home is sold. Other liens might include an outstanding judgment, a tax lien, or an HOA lien among others. Additionally, there may be situations where the first mortgage would be paid in full, but there isn’t enough proceeds from the sale to cover a second mortgage or other liens. Or… there could be situations where the first mortgage is paid in full but the costs associated with sale (escrow, title, agent commissions, etc) might exceed the purchase price.
How to Determine if a Seller Needs a Short Sale
If you believe that the seller will not have enough proceeds from the sale to cover all the debts or if the seller indicates to you that this may be the case, the first step is to order a preliminary title report. While not always 100% accurate, the report would show a list of liens believed to be on title.
Next, ask the seller to provide you with recent mortgage statements so that you have a slightly better understanding of the current debts for the mortgage or mortgages.
The third step is to have the seller complete a Statement of Information and provide that to the title company. The title company will do their due diligence to confirm that there are no additional outstanding liens against the property.
Once you have all that information, contact our office and we can assist you with the mathematical calculations necessary to identify whether this is a short sale situation.
There are often cases where the shortage is very small (such as $1000-$2000). In that case, it is often easier to bring those funds to closing in order to avoid a lengthy short sale negotiation period.
Whatever you decide, if you need help to determine whether your client needs a short sale, please contact the team at Short Sale Expeditor!