Real Estate Myth Buster 2: Any Homeowner Who Is Underwater Can Qualify for a Short Sale

Question 1: Sara bought a Buffalo Grove house eight years ago. She put down five percent ($21,250) on her $425,000 purchase. She owes approximately $420,000 on her mortgage. In the last six months, comparable properties have sold for $350,000. Does Sara qualify for a Short Sale?

Question 2: Rajish bought his Arlington Hts. property twenty years ago. He put down twenty percent ($60,000) on his $300,000 purchase. He owes approximately $220,000 on his house. In the last six months, comparable properties have sold for $200,000. Does Rajish qualify for a Short Sale? 

A Short Sale is a work-out program that allows homeowners to sell their home for less than the total amount owed. Upon final bank approval, a short sale can help homeowners avoid further collection activity or foreclosure action. www.wellsfargohomemortgage.com

Neither Sara nor Rajish automatically qualify for a bank-approved short sale merely because their properties are below market value. Although each lender posts their own requirements, these basically include: a) hardship letter, b) two years most recent tax returns, 3) two to three most recent pay stubs, 4) two to three most recent bank statements, and a 5) financial statement detailing assets liabilities, income, and obligations. kramerlaw@sbcglobal.net

A primary determinant on the lender's decision to approve a short sale depends on whether the homeowner wants to sell or refinance. When in her hardship letter Sara specifies she lost her job as an IT consultant nine months earlier and is unable to continue making the $2500 monthly mortgage payments as she seeks new employment, she needs to state her goal.

The second determinant is the severity of need. In her hardship letter, Sara mentions she suffers from Chronic Fatigue Syndrome and has run up her credit card in paying for meds not covered through her insurance company. Thus she has no money to "bring to the table" should her house sell for $70,000 than what she paid.

Rajish, on the other hand, could easily afford to bring $20,000 "to the table" at closing -- although he doesn't want to! Through years of frugal investing, he's bought and sold five fixer-upper properties. However, two of his properties have been vandalized and tenants have moved out. Rajesh is seeking a short sale on his Mt. Prospect home because he can't afford to pay the monthly nut on his investment properties, let alone his primary residence. In this unique situation, his lender must take into account all these variables.

If you or somebody you know is underwater on their mortgage, the first thing to do is have them call their bank and speak to somebody in the loss mitigation department. The second thing to do is have them phone a local Realtor who specializes in short sales and request a free market analysis on what their home is currently worth. www.coldwellbankerrealestate.com, www.illinoisassociationofrealtors.com