If a homeowner sells their home for less than what they own the lender, this is referred to as a short sale. This can be a lengthy and complicated process because you will need to get all appropriate parties on the same page. The lender must agree that they are willing to take less than the remaining mortgage balance. The buyer must agree to a slower process that requires approval of the lender. And the homeowner must accept the consequences resulting from a short sale in Arizona.
Benefits of a Short Sale in Arizona to Lenders
It may seem odd that a lender would accept a sale for less than the amount they are owed on a home, but there are many good reasons for a lender to accept a short sale rather than pursue a foreclosure. For starters, a short sale usually happens when a homeowner can no longer afford to make their mortgage payments. This means the lender does not know when or if they will start receiving payments on the mortgage again. It is a lengthy and expensive process for a lender to pursue a foreclosure. It is often a better proposition for the lender to take a small loss now on a short sale rather than a larger loss that takes longer to recover in a foreclosure process.
The lender can also negotiate a more affordable monthly payment plan for the homeowner to avoid both short sales and foreclosures. However, this often just delays the inevitable sale of the home if the homeowner finds themselves in a similar situation a few months down the road. Adjusted payment plans require proof that the homeowner will be able to start making timely payments again soon and will be able to continue making those payments going forward.
Options for Negotiating with a Lender Before Short Sale in Arizona
If you find yourself in a situation where you are not able to make your mortgage payments and the home is worth less than what you owe, you have options for resolving the matter. While this is certainly a stressful situation, it is important to remind yourself there are reasonable legal options to avoid financial ruin. Here are a couple options to keep in mind when considering a short sale in Arizona:
Reinstatement is always available to mortgage holders in Arizona. You must repay the entire amount owed by a certain date and the lender delays pursuing foreclosure until that date. This might not be a feasible option if you are already unable to make your monthly mortgage payments.
A forbearance is an agreement to delay or suspend payments for a specific time period. This can be a great option if you are going through a short-term financial strain and will be able to start making regular payments again soon. Lenders can be open to sizable forbearance periods if you are able to show evidence of the short-term financial emergency. However, a lender must agree to any forbearance.
The option to simply negotiate a repayment plan is always available, as long as the lender is open to negotiating. This would typically involve an agreement to miss a payment or two and repay a portion of the past due amount over a reasonable course of time with future monthly payments.
A final option to consider is a claim advance on your mortgage insurance policy. If the mortgage is insured, the borrower can apply for a claim advance on the policy. If your mortgage company offers advances on mortgage insurance policies, these typically take the form of interest-free loans from the insurance company or other similar mortgage assistance.
It is a good idea to speak with your lender before making any decisions on a potential short sale in Arizona. There are even free services available to Arizona residents struggling with mortgage payments. The Arizona Foreclosure Help Line can offer free advice to homeowners. Going through a short sale or foreclosure can be stressful and emotional. If possible, it is advisable to have an experienced attorney represent you through the entire process. The attorneys at MacQueen & Gottlieb can review your entire mortgage situation, advise on the best options available, and negotiate with the mortgage company on your behalf.
Preparing for a Short Sale in Arizona
Before agreeing to a short sale, the lender will require you to submit a package that details why the short sale is the best option for them. Always keep in mind, lenders will only agree to a short sale if there is clear benefit for them. You will need to be prepared to submit a package of detailed financial information as evidence of your current situation. The first document required is a hardship letter that explains why you’re unable to make payments on your mortgage. You will need to request a short sale in this letter. The lender is also going to require tax returns from the previous two years, bank statements, retirement accounts, recent pay stubs, and documentation of any unexpected expenses.
You will also need to submit a letter of authorization for your attorney and/or realtor to speak with the lender. The lender will want a current market analysis on the home or property from a local real estate professional to detail current value. There will be regular communication required between the lender and the professionals representing you to complete the short sale, if approved by the lender.
What Can a Homeowner Expect After a Short Sale in Arizona?
Any homeowner considering a short sale should understand their credit will be impacted. Most experts estimate a drop of at least 100 points—potentially more—in your credit score during the short sale process. Typically, you will have some late payments on your mortgage before you will even have the possibility to negotiate a short sale, which negatively impact your credit. The actual short sale will generally result in a debt settlement being reported on your credit as well. To understand the potential impact of your specific situation, you should consult with an accountant or tax professional in your area.
Find an Experienced Attorney for a Short Sale in Arizona
MacQueen & Gottlieb has significant experience with the short sale and foreclosure process in Arizona. Our firm can assess your current situation and evaluate the legal options available to you. Our attorneys can assist you in getting a short sale approved if it is the best option. Contact us today at 602-533-2840 to schedule an initial consultation or make an appointment online.