THE UNHOLY TRINITY (Continued)

If you decide to sell, you may find yourself in a situation where a reasonable sales price is not sufficient to cover the costs of sale. This circumstance, sometimes euphemistically described as “under water” or “upside-down” may be addressed by a SHORT SALE. In a short sale, you will pay your lender (or lenders) less than the full amount that is owed according to the terms of your loan.

Generally, your lender will not consider a short sale if you are able to continue making your mortgage payments and you have no need to sell. Likewise, if you must sell, but you have the means to repay the loan in full, a short sale is not an option. Therefore, the first step will be to establish to your lender’s satisfaction that you have hardship and that your financial situation prohibits you from continuing to carry the debt and/or repay it in full.

The second step is confirmation of value. A short sale is predicated on the fact that your secured debt exceeds the property’s value. Your lender will want to satisfy itself that resale of the property at a price sufficient to pay off the loan in full is not possible. For this task your lender will consult an appraiser or real estate professional to give an estimate of current market value.

As a general rule, a short sale seller neither receives sale proceeds at closing nor incurs any cost. That is, your bottom line at closing will be zero.

If you believe you are a candidate for a short sale, there are several steps to take:

1. Contact a real estate agent. Your lender will have to approve the transaction. Many lenders will not approve a short sale unless and until you have retained a real estate professional to market and sell your property. Lenders believe that the involvement of a real estate professional affords the best opportunity to maximize the sale price and therefore minimize the lender’s loss.

2. You will have to establish your inability to pay. Your lender will want to evaluate your financial status based on its review of current bank statements, tax returns, pay stubs and a monthly income and expense report. If your lender concludes that you have the means to repay the loan in full, a short sale will not be approved.

3. You will have to establish hardship. Generally, if you do not need to sell your property, your lender would prefer that you keep it and continue to make payments. However, if you cannot continue to make payments (loss or reduction of income or the burden of additional expenses), or if you must sell (forced relocation), then your lender will consider a short sale.