Homeowners who owe more than the value of a property have few options, but a short sale can offer troubled homeowners a relatively easy escape. Even if homeowners receive and accept an offer on the property, though, the lender must still approve the short sale. Because some lenders are less likely than others to approve a short sale, homeowners should take a number of precautions to increase their chances of approval.
The short sale process typically begins when underwater homeowners discuss sales options with the lender or otherwise make the lender aware of their wish to pursue a short sale. The homeowner lists the property for sale and, just as occurs with a traditional transaction, prospective buyers view the property. When a buyer submits an offer, the homeowner may accept or decline the offer. Unlike a traditional transaction, though, the seller does not have the authority to complete the transaction. After accepting an offer, the homeowner or his realtor must forward the offer to the lender for review. If the lender approves the offer, the short sale moves forward. If the lender does not accept the offer, the buyer may counteroffer or end the process.
Underwater homeowners often have little reason to decline a buyer’s offer. In a short sale transaction, the lender typically uses funds from the sale of a property to pay part of the outstanding mortgage balance, then forgives or reduces any remaining debt; except for certain cases in states where a lender may pursue additional recourse, homeowners typically have no responsibility for the debt after short selling the property. In addition, the short sale transaction will have the same effect on the homeowner’s credit regardless of the home sale price. Since the net effect for the homeowner does not change based on the offer amount, and because homeowners are often eager to sell the property, many homeowners accept any offer that a prospective buyer may submit.
Though homeowners often gladly accept any offer they receive during the short sale process, lenders may be somewhat less willing to accept buyer offers. Since banks must write off the difference between the sales price and the outstanding mortgage balance as a loss, lenders often work to minimize the difference between the two amounts. Many lenders only accept short sale offers that approach the fair market value of the property, so a bank may decline a significantly lower offer, even if the homeowner has already approved the offer.
Preparations for Sale
Since many lenders will not accept offers that are below the property’s market value, preparing the property for sale can help increase the likelihood of an approval. Homeowners facing a short sale should treat the process must like a traditional sale, taking efforts like painting and making minor repairs to increase offer amounts. Though homeowners facing foreclosure often remove appliances and even copper wiring, sellers in the short sale process should take good care of the home and make it as attractive as possible to potential buyers.
Keith Evans has been writing professionally since 1994 and now works from his office outside of Orlando. He has written for various print and online publications and wrote the book, "Appearances: The Art of Class." Evans holds a Bachelor of Arts in organizational communication from Rollins College and is pursuing a Master of Business Administration in strategic leadership from Andrew Jackson University.