Overland Park, Kansas short sales

Short Sales: The Seller's Perspective

In difficult economic times, homeowners in Overland Park have the option to short sell their home to avoid bankruptcy and foreclosure. This is becoming a more common practice with housing prices in flux but the homeowner should be prepared and ready before considering short sales in Overland Park. Let’s take a look at some things to bear in mind when considering a short sale.

What Is a Short Sale?

Homeowners, when facing bankruptcy or a foreclosure, have the option to sell their home for less money than their outstanding mortgage balance. This is called a short sale. This alternative to bankruptcy is used to avoid the high costs of foreclosure and must be approved by the lender. Before considering a short sale, there are some details a home owner should consider:

Qualifying for a Short Sale

Sellers looking to put their homes on a short sale must first qualify with their lender. The lender will then look at key factors like:

Declining Market Value

The bank or lender will want to ensure the market value of the home is less than the amount owned on the mortgage.  Many times they will have a couple of different steps to determine the market value. They may start out with a BPO or broker price opinion. That is where they hire a realtor to do a BPO or broker price opinion. This is where the realtor will run a market analysis and compare properties and arrive at a value. Plus more often than not,  the lender will also hire an appraisor and have an appraisal done on the home. They are looking for 2-3 values to come relatively close to help them understand make a better decision on market value.

Homeowners Default Status

If payments are current on a home, the lender is less likely to consider a short sale. There are some grey areas to this rule so make sure you do you some research and check all of the options available.

Economic Hardships

Job loss, reduction in income, divorce, medical emergencies and bankruptcy are just a few of the examples of hardships a lender will examine before considering a short sale. The seller must be prepared to show examples of their economic difficulties like tax returns, financial statements, hardship letter, any paystubs, etc.  Don't take offense to them asking.  Just get as much of the information for them.  It will help move the process along.

No Assets

A lender will not allow a short sale to take place if a significant amount of undeclared assets are discovered during the qualification phase. If cash assets are found, the lender may try and access those accounts.

The approval of the short sale is a slow process so experts recommend moving quickly when a decision is made to short sell a home. One should be prepared for the approval process to take anywhere from three to eight months. Once the short sale is approved in wiriting by the lender. The process typically goes forward similar to this:

Following is a typical short sale process at the bank:

The lender will require that the following and any other information requested is submitted when requesting a short sale in the loss and mitigation department:

  • a signed listing agreement
  • hardship letter
  • 2-3 bank statements
  • any paystubs
  • W-2's for the last 2 years
  • taxes for the last 2-3 years.

then:

  • Bank acknowledges receipt of the file. This can take 10 days to a month.
  • A negotiator is assigned. This can take 30 to 60 days.

Once an offered has been received

  • Another negotiator is assigned - can take another 30-60 days
  • A BPO is ordered. The bank probably will refuse to share the results of the BPO
  • An appraisal will probably be ordered.  The results will not be disclosed.
  • A second negotiator may be assigned. This can take another 30 days.
  • The file is sent for review or to the PSA. This can take 2 weeks to 30 days.
  • The bank may then request that all parties sign an Arm's-Length Affidavit.
  • The bank issues a short sale approval letter.

Impact of a Short Sale

Like the saying goes, there is no such thing as a free lunch and any homeowner considering a short sale should also consider the consequences:

Credit Rating

Depending on how many days or months behind a person is on their mortgage payments, their credit score will be impacted. A short sale typically shows up as a pre-foreclosure redemption status on a credit report but often times the lender doesn’t always make the distinction between a foreclosure and short sale on a credit report.

Debt Forgiveness and the IRS

The slate isn’t always wiped clean after a short sale. The lender may continue to peruse the seller for the amount that is still owned on a mortgage. And, while there are specific laws on the books for mortgage and debt relief, the I.R.S. could consider debt forgiveness as income. It is recommended that a lawyer or CPA be contacted regarding these rules.  Also a 1099 can be issued to the seller. The are 10 things to know about debt forgiveness. Read this blog!

These are just a few of the factors and the process a homeowner must consider before deciding on a short sale. Consulting a qualified real estate agent in Johnson County, like Cindy DiCianni, is really the first step in this process.

If you are thinking about buying or selling a home, give us a call at (913) 312-3614 or send us an email to explore your options and to find out when is the best time for you to make a move.

Contact Information

Photo of The Cindy D Team Real Estate
The Cindy D Team
RE/MAX State Line
11251 Nall Ave
Leawood KS 66211
913-312-3614
913-256-5006
Fax: 913-652-5614