Can my Home be sold for less than the Mortgage? 

Homeowners can find themselves in a jam with a large mortgage and the inability to keep up payments.  Reasons can vary from loss of job, a divorce or health issues.  In this economy, many people find the need to sell their home for less than the mortgage.  This is known as a SHORT SALE.  Yes, a home can be sold for less than the mortgage.

Before listing your home as a short sale, homeowners should get advice and approval from their lender and well as their financial advisors. The difference between the mortgage balance and the sale of the home may be taxable and considered income. There is one exception to the income rule.   You must be able to prove that you are insolvent.  This means that you debts were larger than your income.  If this cannot be proven, then a foreclosure or bankruptcy may be inevitable.

To sell your home for less than the mortgage, find an experienced real estate agent with short sales. Remember real estate agents usually settle for less commission in a short sale. The time to close a short sale deal can be long.  There is also much more paperwork involved so finding the right agent is imperative for success.

Your lender will need documentation that proves you need a short sale due to financial hardship. A lender must approve the amount of a short sale. The lender will check your documented information before approving the short sale.

Short sale process and required information 

  • Check with a real estate lawyer and your accountant for all short sale ramifications.
  • Every lender is different so check with your lender for short sale procedure approval.

·         The lender will need a letter of Authorization.  This letter contains your permission for real estate agents, title companies and attorneys   to discuss personal information to close the sale of your home.  Basic information is needed such as your loan number, name, address, date, and names of people who are allowed to discuss your personal information.

·         Pre-Net statement-This is an estimated closing statement for sales, unpaid loans and outstanding payments due.

·         Hardship Letter- This is a statement to your lender to explain how the financial situation came to be.  Lenders are people also and can understand how bad situations happen to good people such as divorce, job loss and health issues.

·         Financial information: Provide all of your financial information to your lender to verify your hardship statements. Provide proof of assets and income.

·         CMA (Comparative Market Analysis) Markets fall and property values decline which could be the reason for a short sale. Provide the CMA for your property if this is the case and ask your realtor for this information.

·         Listing and purchase contracts when an agreement for the sale is reached, provide this sales contract information to the lender.  The lender will have to approve the short sale.

The lender may approve the short sale which is the best case scenario for a hardship seller. A short sale closing does affect your credit status, but not so much as a foreclosure or bankruptcy.

Only as a last resort should a seller choose foreclosure in which the property goes back to the bank.

A foreclosure should be the last step for a homeowner in which the property goes back to the bank.