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A New Jersey short saleis one of the alternatives to avoid foreclosure that a home owner can choose. It has its pros and cons, but some experts tend to think the benefits of a short sale outweigh the cons especially if the homeowner sees no change in his/her finances. But whether it’s beneficial for both lender and borrower, a short sale still takes a long time to process and often undergoes different steps with each step requiring an approval.

So, why do short sales take so long to complete? A short sale, generally involves the homeowner asking the lender to accept less than what is owed to him. If you were in the lender’s place, you’d naturally think the decision over a hundred times before agreeing to a loss. Mulling this loss over naturally involves time; weeks or even months. Short sales take an average of 245 days to push through.

Moreover, for the lender to agree, the homeowner should present valid proof that a short sale is needed. A looming foreclosure is a substantial proof since lenders themselves do not want to go through with the expensive process of foreclosing. This and the fact that the property will go to the bad debts section and probably incur taxes while under such classification. It also takes time and money to resell a foreclosed property. In a short sale, a willing buyer is usually already waiting.

So, does the success of a short sale all depend on the lender? Here are more answers to the question – Why do short sales take so long to complete?

Homeowner Needs to Package Correct Paperwork

In addition to a looming foreclosure, a homeowner needs to come up with the correct paperwork in order to get approved for a short sale. For one, the lender will require proof that the home’s market value is less than the remaining amount of the mortgage. This proof should be presented in an appraisal report from an independent and reputable appraiser. Other requirements that a lender may require include the short sale hardship letter explaining the homeowner’s distressed situation, pay stubs, tax returns, and bank statements. If a homeowner qualifies for the government-backed short sale program under Realtor, the requirements would include applying for the HAMP loan modification programfirst, proof that monthly payments exceed 31% of income and the hardship letter.

So if you are a homeowner in New Jersey looking forward to selling your home through a short sale, you should make sure you’ve submitted the correct paperwork before asking why do short sales take so long to complete. Because by the time your paperwork has been reviewed and rejected due to a missing requirement, weeks or months would have passed already. In this economic slump that the real estate is in, mortgage lenders are processing hundreds of short sale applications on any single time.

Second or Third Mortgages

Another thing that a homeowner should consider before asking as to why do short sales take so long to complete, is a second or third mortgage. Having more than one mortgage for a home is not uncommon. When a homeowner falls short of the required down payment, he/she might be forced to get a second mortgage to cover the difference. A second mortgage may have also been taken to cover the difference between a low appraisal/the amount the bank was willing to lend, and the higher asking price of the seller.

In case of a second or third mortgage, a homeowner seeking a short sale as an option to avoid foreclosure should also get the second or third lender’s approval. This process takes time because a lender will usually not agree to let go of his lien over the property without anything in exchange or valid proof that a short sale is the only option available.

Mortgage Insurance

The holder of the mortgage insurance or MI is another one of the third parties involved in short sale. Most mortgages are covered with a mortgage insurance that protects the lender in case the borrower defaults on the payments. In the case of a short sale, the borrower would have defaulted on the payments so the insurance provider’s approval is needed since an amount will usually be paid to the lender to cover the default. Again, this process involves paperwork and a step-by-step approval process.

Inexperienced Realtor

Although the processes of selling a home under a short sale seem somewhat similar to a regular sale, a homeowner should seek the help of a Realtor or real estate agent experienced in short sales. Since a lender requires that a home being listed for a short sale should already have a willing buyer, a competent real estate agent is needed to help both buyer and homeowner go through the long months of waiting for the short sale to be approved. But before this, there are processes that a homeowner cannot handle himself. This will include getting a reputable appraiser, listing the home for short sale and many more. All in all, a homeowner should not just look for a licensed real estate agent, but one who specialize in short sales.

While a short sale may be one of the best options a homeowner can consider to avoid foreclosure it takes a long time to complete. The scenarios above are just a few of the reasons why short sales take so long to complete, and understanding each can help a homeowner prepare for the long waiting period; if not achieve a faster approval.