How Does a Short Sale Work in Maryland?
A short sale, also known as a pre-foreclosure sale, is an option to prevent foreclosure on a home. Before deciding whether a short sale is a right option for you, it is necessary to speak to an attorney to understand all alternatives available to you.
If you are unable to make the monthly mortgage payments on your home, a short sale is something you may want to consider. The lender may allow you to sell the property for less than the total amount of the debt if the sale value of the property is not enough to offset the loan in full.
A short sale refers to an arrangement between the homeowner and the mortgage lender to accept less than the total amount due to pay off the property loan. The lender consents to accept the sales proceeds as full payment of your loan despite the fact that it will be “short.”
In the case of a short sale, prior lender approval is necessary as they must agree to accept less than the total amount due. It is not possible to force them to consent to a short sale. This necessitates a negotiated agreement with the lender to consent to your short sale and avoid foreclosure on your property. A committed real estate lawyer can apprise you of the various options available to you if they are a seasoned short sale negotiator.
In addition, you also need to understand your bankruptcy options. A primary reason for undertaking a short sale is to avoid bankruptcy. But sometimes the bankruptcy might be a more conducive option. However, you have to understand your options before taking action.
The Decision Is Not Yours
If the lender wishes to consider a short sale, they will analyze the facts of your particular case and determine if you are eligible to sell the home at less than the outstanding debt. If they agree, the lender accepts that shortfall as their loss.
But anyone who is thinking of a short sale must be aware that the ultimate decision on approval of a short sale is going to be made by the lender, and it will not be easy for you to get the mortgage lender to agree to a short sale.
The Lender has the Final Word
In case the lender wants to consider a short sale, they will assess the specifics of your case and establish whether you are eligible to sell the property for less than the outstanding loan. When the lender agrees to a short sale, they accept the shortfall as their loss.
If you are contemplating a short sale, it is vital to understand that the final decision on the approval of a short sale will be made by the lender, keeping their best interests in mind. In effect, it is not straightforward to get a lender to consent to a short sale.
Sometimes it may be more beneficial to the lender if you file for bankruptcy. If you are required to file a Chapter 13 instead of Chapter 7 by the Bankruptcy Judge, the lender might get more advantageous repayment terms by forcing you to file bankruptcy. Ultimately, it depends on the specificities of your circumstances.
If you cannot retain your home and wish to avoid bankruptcy, a short sale may be an ideal option.
Steps in the Short Sale Process
The following steps are involved in the short sale process in Maryland:
- The sellers are unable to meet their mortgage liabilities due to hardship, such as loss of employment, divorce, or illness, among others.
- The sellers should speak to the mortgage company to understand whether they would do a loan modification (making changes to the current mortgage terms to reduce the amount of the current payment) or if the bank has any other provisions to help them retain the home.
- After it is determined that the lender cannot help the seller retain the property, the seller should consult local short sale specialists. This is crucial as the skills necessary to navigate a short sale are quite distinct from those required for a home sale with equity.
- Put the property on the market. A key difference in marketing a short sale and a home with equity is that while preparing a property for a short sale, very little or no money should be spent on making home improvements.
- The agent will evaluate the price and terms with sellers once an offer is made on the home. In case the sellers find the offer acceptable, they will reach out to the bank(s) for approval. At this point, the real fun begins. It can take time to get approval from banks (also known as third-party) approval.
- The buyer can still undertake property inspections but will likely meet resistance if they require any repairs as the sellers may be unable to pay for repairs, and the banks are also unlikely to make any repairs.
- The bank(s) will arrive at a decision and will approve the short sale in writing. If the sellers are in agreement with the terms, it is time to prepare for closing.
- At this time, the buyer will submit all final loan documentation, the appraisal will take place, and closing will be scheduled (usually with a period of 30 days).
Every short sale is different, but all of them will test your patience. Therefore, the buyer and seller of a short sale must have realistic expectations.
Consult a Qualified Real Estate Attorney in Maryland
It is vital to work with a seasoned legal professional for those considering a short sale or any other real estate transaction. The qualified real estate lawyers at Evans Law have vast experience in handling these types of transactions. Our lawyers will assess your situation and advise you on whether a short sale is a right option for you. If you are considering this option or simply want to understand the process better, call (410) 626-6009 or message us online to schedule a consultation.