I hear time and time again that you have to be behind on your payments to do a short sale; that you have to prove that you’ve suffered reduced income to do a short sale. You don’t. This is currently false information.
If you understand the mathematical components of a short sale, you will see that it doesn’t matter how much money someone makes. A short sale is the process of selling a home for less than what is owed on the mortgage, provided the lender approves it.
A lender has two things in mind when approval is sought on a short sale, and only two things:
- What is the market value of the home.
- How much is the offer.
- How Much Money the Owner Has – NOT IMPORTANT, DOESN’T MATTER
The real, hidden third point, which cannot be proven, is the real determinant. That third point is: Has the owner really decided to abandon the property, and is the bank at risk of owning yet another piece of property. Until the home forecloses, there’s no proof that this is the case. So, it’s in the best interest, as the lender, to analyze the situation mathematically, and mitigate their losses based on a bottom line number by accepting the best possible offer the seller can bring to the table.
Whether or not the owner’s decision is ethical, immoral, or what have you, the bottom line from the bank’s perspective is that there’s an owner who is walking away from a property and doesn’t intend to pay the mortgage anymore.
Banks do NOT want to own real estate and this is why they really don’t care what your financial situation is while the foreclosure clock is ticking. Might they come after the seller after the transaction closes for the deficiency? That all depends on local laws, and it depends on the terms of the bank’s Letter of Agreement.
The resulting financial consequences to the seller may be negative, but their income, and assets have nothing to do with the bank’s decision to allow the sale of the home, period. The bank just wants to see the seller comply with the checklist of information that they need to process the paperwork to get the offering price to the investor and a final approval to avoid the headache of owning yet another REO home.
