The short sale process starts with the homeowner placing their home on the market with an agent and then presenting the bank with the highest possible offer obtained. In order for the bank to evaluate accepting a short sale the homeowner would need to submit to the lender the same documentation as though they were applying for a loan, which would include pay stubs, bank statements and W2s.
Relief for Short Sale Homeowners
The big dilemma for homeowners who want to sell their home, but have no equity is twofold. The first is that the homeowner needs to have the note holder agree to accept less than the full payoff of the note. The second is for the homeowner to receive a full release of any future liability. Many lenders would agree to accept a payment of less than the full balance owned on the note, but would not release the homeowner from any additional liability. The short sale process starts with the homeowner placing their home on the market with an agent and then presenting the bank with the highest possible offer obtained. In order for the bank to evaluate accepting a short sale the homeowner would need to submit to the lender the same documentation as though they were applying for a loan, which would include pay stubs, bank statements and W2s. The homeowner would also need to provide a hardship letter for the bank to evaluate. The bank would then obtain their appraisal to insure the offer that was submitted was close to fair market value.
Many homeowners attempting to do a short sale were challenged with the fact that the bank would not give them a full release of liability. If the bank decided to collect on the balance of the note, the only solution for the homeowner would be to file chapter 7 bankruptcy as a last resort. Many homeowners chose the other option, which would be foreclosure. Under the laws under the state of California, once the bank foreclosed there would not be any liability. The banks usually ended up with tens of thousands of dollars less when they foreclosed on the property, compared to doing a short sale. On October 1, 2010 the governor signed into law SB931 or the Anti-Deficiency Bill for sales completed after January 1, 2011 for first trust deeds only. This bill will protect the short sale seller from the bank on the first trust deed from proceeding with any collection action after the sale. All first trust deeds will be protected even when equity was taken out of the house in a refinance. The bill does not offer any protection for second trust deeds. Most homeowners who use subprime lending in the peak of the market had a first and second combination. This law does not protect the homeowner if the lender can prove fraud.
Many people are questioning why this bill was so limited in scope, as to not also providing protection for second trust deeds. Homeowners who have already closed on a short sale without a full release of liability from the lender would like to see this bill retroactive. It is a step in the right direction, but does not go far enough.
For more information on short sales visit: http://www.shortsalesandiego.us/
