Tuesday, May 4, 2010

Short Sale Eligibility: You Don't Have to Be Behind on Your Mortgage

Probably one of the biggest misconceptions with sellers and the short sale process is that, as a seller, you have to be in default before the bank will consider a short sale.  This may have been true awhile ago however today it’s no longer the case.

For many sellers, it simply isn’t necessary to fall behind on your payments to show a sufficent hardship.  Take, for example, the seller who has lost their job but has a little bit of savings and is collecting unemployment.  Unless their prospects for work are high, they are immediately a candidate for a short sale if they owe more on their mortgage than the market value of their house.

Another similar scenario is when a seller faces a significant reduction in pay which forces them to make up the difference from savings.  Again, this seller may be a great candidate for a short sale as long as the the hardship (in this case, the loss of a job) can be proven with paystubs and bank statements.

While economic and job-related hardships are most common today, especially here in the Chattanooga area, a medical hardship is another avenue for sellers to take.  An example of a medical hardship would be the death of an income earner or the loss of a child.  It could be overwhelming medical debt that would have one considering bankruptcy.

The key to each of these is that while the seller may not be in default today, a default is immenent should the bank not allow the short sale.

Unfortunately, there will be some who will try to game the system to get out from under a bad mortgage or purchasing at the wrong time.  These situations are not hardships and wouldn’t qualify for a short sale.

If you have, or are anticipating, a job loss and think you may need to take advantage of a short sale, the best thing you can do is to examine your personal finances to see where you stand.  That way, if the axe does fall on your job, you can know instantly where you stand before you hit the critical point at which you are falling behind on your mortgage.

Once you have fallen behind in your mortgage, the clock starts ticking and the options for pricing and the availability of buyers begins to shrink drastically.  That’s why it is imperative to know where you stand otherwise you may have fallen behind on your mortgage, consider a short sale, and then realize that your home is going on the auction block tomorrow.  At that point, it’s too late.