What Is a Short Sale, and How Can a Real Estate Lawyer in Seattle Help You?
You can face certain dangers when you run into financial distress or own a home in an unstable real estate market. One of these problems occurs when the lender forecloses on your home, causing disastrous consequences.
Homeowners may want to try every option they can to avoid foreclosure and may use a short sale as a solution.
A short sale is a real estate transaction that occurs when a homeowner sells their property for less than what they owe on their mortgage as an alternative to foreclosure. It can help homeowners avoid the credit damage and financial consequences of foreclosure.
Lenders do not have to allow you this option, so you must find a way to make a short sale financially advantageous to them.
You should consider hiring a real estate attorney if you are contemplating a short sale of your home. They can explain your legal options and deal with the lender on your behalf.
A Seattle real estate attorney will then guide you through the process to increase your chances of success and to protect you from significant liability to the fullest extent possible.
An experienced lawyer can advocate for the homeowner and present a compelling case to the lender, demonstrating why a short sale is in everyone’s best interest.
This negotiation can result in a more favorable outcome for the homeowner, including a reduced deficiency balance or even forgiveness of the remaining debt.
Get legal help to manage and handle the challenging short sale process.
What Is a Short Sale?
When you take out a mortgage, the lender has a collateral interest in your property. They have the right to foreclose on the property if the borrower defaults on the payments.
It is the bank’s right to go through the foreclosure process, provided that they follow the proper legal process and are not otherwise acting illegally.
The bank has a legal right to get paid for the borrowed money, and it will recoup that money from the home sale. The borrower can receive payment for any surplus funds from the sale. However, even if the property sale does not yield enough proceeds to repay the loan’s original amount, you must still pay the bank back. In this situation, you may face a crippling financial judgment.
A short sale is an alternative to foreclosure, but it can still have harsh consequences for the borrower.
Here, the bank approves the borrower’s ability to sell their home independently when the property’s value is worth less than the mortgage. The borrower must seek the bank’s permission to engage in a short sale because it affects the lender’s financial interest.
Who Makes a Short Sale in Seattle?
Typically, homeowners who make a short sale in Seattle are those who owe more on their mortgage than the current market value of their home and are underwater on their payments.
These homeowners may have experienced a decrease in their home’s value or encountered unexpected financial challenges that make it difficult for them to continue paying their mortgage.
In a short sale, the homeowner works with a real estate agent and a real estate attorney to negotiate with their lender to sell the property at a price lower than what the homeowner owes on the mortgage. The lender agrees to accept this lower amount as full payment, releasing the homeowner from their mortgage debt.
Banks still have tremendous power in a short sale because they may approve the offer.
Lenders typically require certain qualifications to qualify for a short sale, such as a legitimate financial hardship, a demonstrated inability to make mortgage payments, and an appraisal showing that the home’s value has declined below the mortgage balance.
If the bank does not approve the offer, the borrower must make mortgage payments on a property they cannot afford.
Why Borrowers Want to Make Short Sales
Foreclosure can have a disastrous effect on a borrower’s credit, and it may be many years before they can qualify for a loan again.
Short sales, while they can hurt a borrower’s credit, may hurt somewhat less. You may have a better chance of qualifying for a loan in a more stable financial situation.
In addition, you may have more control over the sale itself. In a foreclosure, you rely on a trustee to execute the sale, and they call all the shots.
Depending on someone else’s decisions, you may owe the lender money. Even though the trustee owes you fiduciary duties, they may still not act in your interests. It is better financially to maintain some degree of control over the transaction.
However, there are also some drawbacks to a short sale. The transaction process may become lengthier because it heavily involves the lenders. They may take their time to approve the sale, leading potential buyers to look elsewhere for their home.
You may not have as robust of a market since some buyers may rather not deal with short sales because of the uncertainty. Your credit also suffers because you may not have paid back all the money you owe the bank. You may also owe money in taxes if the short sale cancels some of the debt you owe the lender.
Why Banks May Approve Short Sales
Banks may not want to engage in the foreclosure process for several reasons, mainly because lenders want to protect their financial interests above all else. The foreclosure process may not benefit them in a declining real estate market.
When banks take ownership of the property, they assume the risk of selling it.
Even though the homeowner may owe the bank money if they sell the property for less than they owe on the mortgage, it is not always easy for the lender to collect this money. After all, there is a reason why the owner is foreclosing the property- the borrower is in financial distress and cannot pay the judgment.
Lenders who allow a short sale can save themselves the hassle and reduce their financial risk. Banks make the decision after assessing the situation on a case-by-case basis.
How the Short Sale Process Works
There are extra steps in the short sale process that can take more time than a traditional real estate transaction.
To complete a short sale, you must:
- Identify financial hardship: You will first need to explain your financial situation to the lender to give it a reason to work with you in the short sale process. You will submit paperwork for it to consider when deciding whether or not to approve the short sale.
- Accept the lender’s decision: The bank will decide at the outset whether to consider a short sale. There is a chance that the bank will not want to work with you and will proceed to foreclosure if you have defaulted on your loan.
- Hiring a real estate agent: You should work with a real estate agent with some experience handling short sales because it increases your chances of success. Remember that you must present the bank with a specific offer that it will want to approve.
- List the property for sale: The agent will use their professional skills to list your property in the relevant listing sources.
- Receive and negotiate offers: You will negotiate a price, just as in any other real estate transaction. Even though you are making a short sale, you will still have the power to deal with the buyer to get the best possible price. Again, you must present the bank with an offer it will want to accept.
- Present the offer to the bank: For you to proceed to closing, the lender must approve the specific transaction. It will review the price and the particular terms of the contract to determine whether to give its assent.
- Close the transaction: If the bank approves the short sale, you will proceed to closing. When the deal closes, the bank will receive all the proceeds and apply them to the debt you owe it.
You may encounter several challenges in a short sale, including:
- Delays in the timeline: Since you are relying on the lender’s approval of the short sale, there may be potential delays that you will need to handle during the sales process. In addition, there may be delays that may impact whether the lender approves your short sale.
- Competitive real estate market: Seattle is known for its competitive real estate market, which can either benefit you or derail your efforts to obtain approval for and execute a short sale.
- Navigating issues with the buyer: Since you are selling a property, you are likely dealing with the same problems as in any real estate transaction, whether related to the home’s condition or the buyer’s getting approval for financing.
How a Real Estate Lawyer Can Help with a Short Sale
Even though you are experiencing financial difficulties, it may make sense for you to hire a real estate attorney to assist in the short sale process because they can give you a better chance of completing it.
Potential complex issues arise during the short sale process that you can have an easier time handling with help from an experienced real estate attorney.
When you hire a real estate attorney, they can:
- Assess eligibility for a short sale: Your attorney will evaluate the financial hardship criteria for a short sale and determine whether you qualify. They will review your mortgage documents and the lender’s requirements for a short sale and give you advice about your potential eligibility.
- Negotiate with lenders: Your bank may not be as willing to deal with you without the help of a real estate lawyer. After all, one of the reasons why banks approve a short sale is for their convenience and to reduce their burden. The process is more streamlined when the bank deals directly with an experienced real estate lawyer. Your attorney will speak on your behalf to the lender and potentially persuade it to approve a short sale.
- Draft and review contracts: How your attorney drafts the real estate purchase contract can protect you from future liability to the lender. In addition, the real estate attorney can draft the agreement to ensure it complies with Washington real estate law.
- Manage title and liens: There may be issues with liens against your property, especially if you are already in financial distress. A real estate lawyer can help discover potential encumbrances or problems that cloud the title and complicate the home’s sale. They may act to help resolve these issues and facilitate a short sale transaction.
- Explain tax liabilities: A real estate lawyer can advise you of tax liabilities so you can understand and plan for them.
- Helping you handle Washington law: There are possible specific issues with Washington law when you are selling a property, even ones that do not relate to short sales. A real estate attorney can explain state law and how it relates to the short sale of your home.
You generally cannot sue banks for failing to approve a short sale because they have no legal obligation to work with you. Therefore, you must work with them in a way that makes it financially advantageous and as effortless as possible for them. You can do this with the help of a real estate lawyer.
A Seattle Real Estate Attorney Is Standing By
A real estate lawyer in Seattle can be a valuable asset for homeowners considering a short sale. Their experience, negotiation skills, and attention to detail can help homeowners handle the process and achieve the best possible outcome.
If you face financial difficulties and think a short sale might help you, do not hesitate to seek the assistance of a qualified attorney to guide you through the process and protect your interests.
