Seller's Guide To The Short Sale

Seller's Guide To The Short Sale

What is a Short-Sale?

Short sales happen when a bank agrees to accept less than the amount of the mortgage the seller owes to the bank. The property may be encumbered by two loans or one loan. If it has two loans, both lenders must agree to accept a short sale.

 

How do you know if you are going to be short, if you sell your home?

It would be a good idea to hire an appraiser or ask a Realtor to do a CMA (Comparable Market Analysis) on your home and then deduct the balance of your mortgage(s), any line of credit(s), other lien(s) and cost of sale from the estimated market value of your property. Realtor=s often referred to this process as preparing a Seller=s Equity Sheet or Seller=s Net Sheet. Once this has been done, you=ll have a good idea of whether you=re >Short@ (assuming the appraisal or CMA are accurate).

 

What is the next step if you are Short? You will need to gather some information:

$        Contact your mortgage(s) company to discuss the possibility of a short sale and to determine the lender's process for completing the sale.

 

$        Ask who will negotiate the Short-Sale with the bank(s): creditor(s), a negotiator, a lawyer, a realtor, title company, etc.

 

$        Ask what is the time frame for processing the Short-Sale.

 

       Ask for a Third Party Authorization Form - this will allow the bank to discuss personal information about your loan and your property with you=re Realtor/Attorney. You need to get this to the bank as soon as you hire a Realtor.

 

$        Have your Realtor prepare a Listing Agreement - this should include a CMA of the property to justify your list price.

 

       The lender then will review a settlement statement , which will indicate the proposed selling price, remaining loan balances and itemize all expenses associated with the closing.

 

$        Gather up current year and year prior W-2s - or the tax forms that you filed if you do not get W2s.

 

       Make a profit and loss worksheet for current year.

 

$        Gather up you last two month=s bank statements.

 

$        Give proof of disability or unemployment or job transfer (if applicable).

 

$        Write a Hardship Letter - This explains why you want to Short-Sale and why the bank should allow you to Short-Sale.

 

$        If you are going through a divorce each spouse will need to gather the above information and each spouse will need to prepare a Short-Sale package.

 

$        Ask the bank the procedure for giving them back all of this information: to be mailed, faxed, emailed,etc.

 

$        Ask the bank for any other helpful pointers on how to get your package approved and the next step on their part and a time frame for the whole process.

 

$        Ask if there is one point of contact to discuss your file during the process. Get a name, title, and phone number for this person.

 

$        Send all the paperwork including the Hardship Letter back to the lender. Get confirmation that it was received.

 

       List the property for sale. Your agent should prepare a good and fair value CMA.

 

       Once your agent receives a contract it will be presented to the bank. Some banks want one contract at a time; others want to see them as they come in. Another reason to contact the bank ASAP. Your agent should get confirmation from the loss mitigation offer at the bank and preferably written proof of receipt.

 

$        Your agent should ask how long it will take for a contract to work its way through the system. Your agent should ask about the likelihood the loan will be sold. Some times the banks like to sell the loans right before they give approval, and then the whole process must start all over.

 

$        Stay as current as possible. Ask the bank what their policy is on how many months behind can you be and still have the Short-Sale be successful.

 

$        Each bank has its own process. Some banks that are in 2nd position will only start processing their Short-Sale after they've received written Short-Sale approval from the 1st mortgage. This means that the overall Short-Sale approval process may take twice as long with two mortgages.

 

       If you decide to go the Short-Sale route to sell your home it is recommended that you consult an attorney that is familiar with the process. It is also important to use a Realtor trained in the Short-Sale process and has experience in Short-Sales.

 

SOME EXPECTATIONS

Sellers should expect time delays in Short-Sale situations.

Why the delay? Three main reasons: A huge increase in the number of Short-Sales; Banks being short staffed; Lack of an efficient internet review process.

The Short-Sale process may take as long as 3 to 6 months or more to complete.

Even when you get a response from the bank, it could be a A "No we're not accepting your Short-Sale."

If you're a seller thinking about doing a Short-Sale, but aren't sure what a Short-Sale is all about or where to start begin discussions with your attorney and or a Realtor familiar with the Short-Sale process.

Sellers that are successful with a short sale end up avoiding foreclosure and an even bigger ding to your credit. A foreclosure can stay on your credit report for up to 10 years and can take an emotional and financial toll on you and your family.

The pitfalls of the Short-Sale process should be considered as well. The I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. In addition lenders cann often pursue a borrower for the deficiency balance (the difference between the amount owed and the amount paid)

Sellers might also expect that the pool of prospective buyers may be smaller than for properties not subject to short sales, and that those buyers may also be investors looking for good deals.

Sellers can expect to possibly loose buyers who make offers on their homes during the Short-Sale process. Buyer's time frame for which they may need to move may not be met on time.

The list price of a Short-Sale home generally has very little bearing on the actual price a bank may accept. The list price may be too high to attract an offer or too low for the bank to accept. Just because the seller may accept the offer does not mean the bank will agree to take a Short-Sale.

Sellers do not need to be in foreclosure or have fallen behind in making mortgage payments, for a Short-Sale to occur.