If you are among the tens of thousands of people struggling to pay your mortgage you may be wondering if a Short Sale is the answer to your problem. There is no general answer that applies to every situation but if you are aware of what a Short Sale is and its benefits and consequences you will be able to make a more informed decision for yourself.

Short Sales sometimes occur

• When it is financially impossible to pay-off your mortgage and selling it will not raise enough money to pay it off
• When a drastic change in lifestyle requires that you sell your home and/or relocate.
• When a death in the family or catastrophic illness changes your household income significantly
• When the terms of your mortgage change (interest rate increase or balloon payment comes due) and you are unable to abide by the new terms.

Steps before considering a Short Sale

• Contact your bank to see if there is a possibility of restructuring the loan to make it more affordable for you.
• Contact the local Housing Resources organization to find out if there are financial remedies that you may be eligible for.

Once you have exhausted the possibilities for alternatives to Short Sale it is time to contact a Realtor and put your house on the market. Make sure you find out if your Realtor uses a negotiator - the negotiator makes the transaction much smoother and is most suitable to negotiate on your behalf. The commission for the sale and the payment for the negotiator will come out of the proceeds from the sale.

Once an offer comes in on your property and you accept it, the offer along with a packet of your information is submitted to the bank. The packet will include such things as

• Your last two years of W2s
• Your last several bank statements for any accounts you hold
• Proof of other obligations (child support orders, judgements, other loans, etc.)
• A financial report (laying out your monthly expenses vs income)
• A Hardship Letter (a letter explaining why you are unable to meet your obligation and why the bank should release you from your mortgage obligation).
• The offer (usually on a Purchase and Sale contract).
• Proof of the buyer’s ability to finance the purchase

The longest wait follows the submission of all the above paperwork but EVENTUALLY the lender will either accept the offer, counter the offer or refuse the offer. The important issue for you as the seller is how they will handle the balance of the loan. Will they release you from it entirely? Will they seek a reimbursement of part or all of it? Talk to your Realtor about making the sale contingent on you being released from all outstanding debt with the note holder.

 The closing will take place as it would with a traditional transaction and you will be required to transfer your ownership to the buyers.

Once the Short Sale is completed it will be reflected in your credit history and may affect future funding availability. It is important that you know that. The impact is not nearly as severe as it would have been if the bank foreclosed on the property rather than participating in a Short Sale but it is reflected as a debt that will not be satisfied.

If, after reading this article, you think a Short Sale might help you out of your situation contact me or another Realtor to talk about specifics. If you are outside of Rhode Island I still may be able to find a Realtor who can assist you and who has experience with short sales.