Navigating the Short Sale Process for Chicagoland Homeowners
What Is a Short Sale?
A short sale occurs when the lender allows a homeowner to sell their property for less than the amount owed on the mortgage. This can be a better alternative to foreclosure because doens't impact your credit score as badly as a foreclosure, and it can allow you to avoid having a foreclosure on your record.
In a short sale, the proceeds from the sale go to pay off the mortgage, but they are “short” of fully repaying the loan. The lender has to approve the sale and agree to accept less than the full balance.
When Is a Short Sale the Right Option?
A short sale may be your best option if you are struggling to make payments and you owe more on your mortage loan than your home is currently worth. Here are some common scenarios when a short sale makes sense:
- You can no longer afford the payments. If your income has decreased or expenses have increased, a short sale allows you to sell and relieve yourself of unaffordable mortgage payments.
- You have a temporary hardship. A job loss, medical issue, or change in family circumstances may create a temporary inability to pay your mortgage. A short sale provides an "out" during this difficult time.
- You have little or no equity. If what you owe on the mortgage is close to (or even more than) the current market value of the home, a short sale avoids the hassle of trying to sell a property with no equity.
- You need to relocate. If a new job or other situation requires you to move, a short sale allows you to sell quickly without having to bring cash to close or sell at a significant loss.
- Mortgage modification is not an option. You may not qualify for a loan modification for a variety of reasons. In this case, a short sale provides an alternative to foreclosure.
The Benefits of a Short Sale
While not ideal, a short sale provides several advantages over the alternatives:
- Less damage to your credit. A short sale typically causes less damage to your credit score than a foreclosure or deed-in-lieu of foreclosure.
- No deficiency judgment. In a short sale, the lender agrees to accept the proceeds and will not come after you later for the deficiency (the remaining balance owed).
- Avoid foreclosure. A successful short sale prevents the lender from initiating foreclosure proceedings.
- Remain in control. With a short sale, you can oversee the process and timeline, rather than the lender taking control through foreclosure.
- No waiting period to buy again. Unlike a foreclosure, there is typically no waiting period before you can qualify for another mortgage after a short sale.
How Does the Short Sale Process Work?
While every short sale has its own nuances, the basic process follows these key steps:
- Consult your lender. Contact the lender as soon as you decide a short sale may be necessary. Alert them that you intend to sell your home for less than you owe.
- Hire Teresa Ryan, a certified Short Sale Real Estate Agent: It's important that you use a qualified real estate agent certified, experienced and familiar with short sales to guide you through the process.Teresa Ryan has over 20 years of experience in short sales, and holds several short sale certifications.
- Gather documentation. Your lender will request extensive financial records and other documentation to evaluate the short sale request. Be prepared to gather and submit things like bank statements, tax returns, income statements, hardship letters, and bills.
- Submit short sale package. With the help of Teresa Ryan, submit the short sale package to the lender containing all requested documentation, purchase contract, closing estimates, and other details.
- Negotiate. The lender will likely counteroffer the initial purchase price. Be prepared for your agent to negotiate back and forth until acceptable terms are reached. A short sale is a long process that can take weeks or months to close.
- Obtain lender approval. Once approved, get formal written consent from the lender agreeing to the sale price and terms. Require this before closing.
- Close sale. With the lender's approval in place, move forward with closing on the property just as you would a typical real estate transaction.
Tips for a Successful Short Sale
Because short sales are complex and involve many moving parts, it’s essential to take proactive steps to streamline the process:
- Act quickly. Contact your lender at the first sign of trouble paying your mortgage. Short sale approvals can take 90 days or longer, so start the process well before missing payments.
- List at fair market value. Research comps with Teresa Ryan thoroughly and price the home based on current market data, not your owed balance.
- Keep all promises. Follow through on providing documentation as agreed. If you say you’ll deliver something by a certain date, make sure you meet that deadline.
- Stay on top of communication. Quickly respond to all requests from brokers, agents, buyers, and the lender. Missing an email or phone call can delay approvals.
- Be flexible. Understand that back-and-forth negotiation is likely required. Be open to lender counteroffers requiring you to drop the price or make other concessions.
- Lean on professionals. Teresa Ryan - your real estate agent, and your closing attorney will be invaluable in navigating paperwork, Mortgagee Clause, negotiating the lender, and getting the short sale completed.
How Do Short Sales Impact Sellers' Credit?
While certainly better than foreclosure, a short sale will still damage your credit score. The impact depends on your current credit standing. According to data from FICO, here are the average score impacts:
- Exceptional credit. For those starting with a credit score between 780-850, a short sale can lower it by 105-125 points.
- Very good credit. People in the 740-780 range may see their score drop by 110-150 points.
- Good credit. If your starting score is 670-739, expect a decline between 120-160 points.
- Fair credit. For those with a score of 580-669, the hit can be 130-190 points.
- Poor credit. People with poor credit below 579 can see their score drop 140-215 points.
The more negative items already on your credit reports, the more damage a short sale can inflict. Luckily, the credit damage from a short sale is not permanent. Scores tend to start rebounding in as little as 12-18 months. And the short sale can fall off your credit reports after 7 years.
Alternatives to a Short Sale
In some cases, other options may be preferable to a short sale:
- Loan modification. Your lender may agree to modify the mortgage terms to make payments more affordable without having to sell the property.
- Deed-in-lieu of foreclosure. You voluntarily transfer ownership of the property back to the lender to avoid foreclosure.
- Bankruptcy. Filing for bankruptcy stops foreclosure and provides time to decide next steps while protecting other assets.
- Ignore the situation. Although not recommended, you could attempt to stay in the home as long as possible before the lender completes a foreclosure.
Make the Best of a Difficult Situation
For Chicagoland homeowners struggling with their mortgage, a short sale can provide a clean exit without the lasting impacts of a foreclosure. But it’s imperative to fully understand the complex process, requirements, and credit consequences before proceeding. Consult Teresa Ryan -- a trusted real estate short sale certified agent and legal professionals, act quickly, and be prepared to negotiate. With the right approach, a short sale can be the best possible outcome during a difficult circumstance.
Get in touch with Teresa Ryan for consultation about your short sale.