Avoiding Foreclosure via Short Sale

What's a Foreclosure?

You probably already know what a foreclosure is, but you may not be familiar with the process as a whole. To give a quick refresher:

A foreclosure is the legal process that lenders trigger to gain the title to a home that was used as collateral for a defaulted mortgage loan. It terminates all the homeowner's rights covered by a mortgage and makes the lender the absolute owner.

The lender may also choose to file a Lis Pendens, which is a notice that begins the process. If this is filed, the homeowner is required to appear in court, and answer the charges. During this time, the homeowner can ask for an extension, but it may or may not be granted. If not, then the last phase of the foreclosure process starts: the Auction phase.

The foreclosing trustee, a third party, records and prepares the notice of foreclosure, which details the legal description of the property being foreclosed upon and gives the place, time, and date of the pending trustee sale. A foreclosure is complete when the lender obtains the property's title, the Sheriff or Trustee's deed is recorded, and status code 46 is reported to the Single Family Default Monitoring System.

The entire foreclosure process may take 120+ days from the first missed payment until the completion of the foreclosure. To avoid these issues, one of the main solutions to a foreclosure is a short sale.

How a Short Sale Works

Before the foreclosure process begins, you have the option of looking into a short sale of the home. Owing more money on the property than it's currently worth, you'll be able to negotiate a short sale with the lender in order to cover costs. Typically, the property is required to be placed on the market, and you need to show documented financial hardship to qualify. When it comes to the legal definition of a "hardship," it typically refers to a tangible change in the stability of your finances due to things like job loss, divorce, excessive debt, etc.

Documentation will need to be provided to prove hardship and that mortgage payments can no longer be made. Once it's been reviewed and approved by the lender, they can agree to move forward with the Preparation step, which includes preparing the home for listing/sale with photos and a home inspection.

The other steps for a short sale typically go as follows:

Marketing

• The property must be listed for sale in the MLS.
• A line of communication will begin between all involved parties (lender, agent, homeowner).
• The property will be shown frequently and the asking price will be lowered every 15 days (on the 1st and 15th) until a justifiable offer is received.
• Offers are received and given to the homeowner for review and signing and then submitted to the lender.

Lender Negotiation

If the offer is accepted, it's signed by the lender and a contract begins.

• The lender will verify current copies of financial information, such as bank statements and paycheck stubs.
• Any additional documentation must also be completed and returned in a timely manner.
• The agent will submit the Short Sale package and all required documentation to the lender for finalization.

After the lender accepts that offer and all documentation is complete and verified, they'll inform the buyer that closing can begin. The title company will schedule the closing, and the buyer can make final inspections on the home.

At this point, the homeowner has to vacate the property and remove all belongings. Then, both the buyer and homeowner will meet at the title company for the signing of the final paperwork and turning in of keys and remotes.

After the signing, the title is officially transferred, and the new owner takes ownership. The lender will issue a mortgage satisfaction document, which is then recorded in public records. Keep in mind that if the lender ultimately declines the offer, the lender can either submit a counter offer to the potential buyer, or outright require the home remain listed for sale. The process will continue from there