How Should Mortgage Lenders Respond to Requests for Short Sales?

 Posted on June 29,2022 in Mortgage Foreclosure

Creditors often need to deal with situations where debtors fail to pay debts that are owed. This can be a significant concern for mortgage lenders who need to protect their interests in property used to secure loans. Debtors who are unable to make mortgage payments may take steps to sell a home. However, there are many situations where a home may be underwater, and the value of the property may be less than the amount the debtor owes to the creditor. In these cases, homeowners may seek to complete a short sale. They will usually need to receive approval from their lender to do so. Creditors will need to determine how to respond to short sale requests as they take steps to protect their financial interests and minimize their losses.

Response and Approval of Short Sales

When a debtor requests a short sale, they will typically seek to sell the home at the current market value, and they will ask their mortgage lender to forgive any deficiency. That is, if the home sells for less than what is owed on the loan, the seller will not attempt to collect the remaining balance from the debtor. While it may seem more financially beneficial for a lender to pursue a foreclosure, the expenses and complications involved in this process may prevent the lender from recovering a significant amount of what is owed. A short sale may be a simpler and easier way to recoup as much of the balance of the loan as possible.

A seller who requests a short sale will typically need to demonstrate that they have experienced financial hardship that has affected their ability to meet their financial obligations. Hardship may include the loss of a job that has affected a person’s income, injuries or illnesses that have led to large medical bills, disabilities that have affected a person’s ability to work, or other extraordinary expenses or financial issues. After a short sale is requested, a lender may evaluate the debtor’s situation to determine whether they qualify, and they may also receive a broker price opinion (BPO) of the market value of the property to ensure that the sale price will be appropriate. Other creditors may also need to approve the short sale, including second mortgagees, home equity line of credit lenders, or homeowner’s associations that have a lien against a home due to unpaid fees.

If a lender chooses to approve a short sale, they may request that the seller and buyer sign an arm’s-length affidavit stating that the parties do not have a pre-existing relationship. The lender may then issue an approval letter that will state that the short sale may proceed as long as certain requirements are met. The approval letter may specify the sale price that will be accepted, the net proceeds from the sale after closing costs are deducted, the amounts of commissions and closing costs, the date of closing, and a release of liability for any debts that are outstanding after the sale has been completed.

Contact Our Chicago Mortgage Lender Attorneys for Short Sales

Determining how to respond to short sale requests is not always easy, and mortgage lenders will need to make sure they are taking the necessary steps to protect their financial interests. The attorneys of Dimand Walinski Law Offices, P.C. can make sure lenders meet all legal requirements during the short sale process while also protecting their rights. To get legal help with foreclosures, short sales, and related issues, contact our Cook County mortgage collection lawyers at 312-704-0771.

Sources:

https://www.thebalance.com/the-complete-short-sale-process-1799195

https://www.thebalance.com/what-is-a-short-sale-approval-letter-1799207

https://masontitle.com/shortsales/