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Homeowner owes more than the house is worth. The homeowner does not need to be facing a foreclosure to do a short sale. Some lenders require the seller to be facing a financial hardship, however.
1. Real estate agent gets the listing and seller sets a price at market value or generally 5 to 12 percent below market value. Realtor puts home on the market.
2. Buyer makes an offer. Listing agent submits it to lender.
3. Lender considers the offer. Lender may take several weeks or months to respond.
4. Buyer may be looking at other houses simultaneously. Some agents discourage this.
5. Lender may make counteroffer, refuse the offer or accept it. Lender may offer small amount to secondary lender that financed the down payment or home equity loan to release its lien and let the sale proceed. Negotiations may be difficult. Secondary lender may want buyer or seller to pay extra and not tell the primary lender, and threaten not to release the lien. The going rate from the primary lender to the second lender is $1,000 to $3,000 and may be up to $6,000 under a federal incentive to encourage short sales.
6. Everyone finally reaches agreement. Short sale approval letter is issued. Escrow typically closes in 30 days or less.
7. Seller may be in position to buy another house in two to three years versus five to seven years with a foreclosure. Buyer may have scored a good price by sticking with the process.
Sources: Bee research, Realtor Elizabeth Weintraub, Lyon Real Estate
Cliff Cottam Insurance Services (CCIS)