Preparing for a Short Sale

A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency. It’s significantly different from a foreclosure, which is when your lender takes the title of your home through a lengthy legal process and then sells it directly. A short sale is sometimes the route sellers take to avoid foreclosure.

Consider loan modification first.
Contact your lender to see if it has programs to help you stay in your home. You may be able to refinance your loan at a lower interest rate, switch to a different payment plan to help you get caught up, or secure a temporary forbearance period.

Hire a qualified team.
Find a qualified real estate agent and a real estate attorney who both specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Find people who will advise you in your best interests. A qualified real estate professional can give you accurate pricing advice through a comparative market analysis or broker price opinion. The team will also be able to expertly market the home, negotiate complex contracts with buyers, and ease the process of working with your lender(s).

Prepare a short-sale package to send to your lender(s) for approval.
You can’t sell short without your lender (and any other lien holders) agreeing to the sale and releasing the lien so that the buyers can get clear title. This is another task where your team will be indispensible.

Gather documentation before offers come in.
Your lender requires several documents in order to consider a short sale. This package accompanies the offer, typically including: 

·       A hardship letter detailing your financial situation and why you require a short sale

·       A copy of the purchase contract and listing agreement

·       Proof of your income and assets

·       Copies of your federal income tax returns for the past two years

Navigating a Short Sale

Be prepared for a lengthy waiting period.
Even if you're well organized and have all the documents in place, short sales can still be a long process. Waiting for your lender’s review of the short-sale package can take several weeks or even months. The length varies by lender and location, but these benchmarks can put your situation in perspective:

•       If you have only one mortgage, the review often takes about two months.

•       If you have a first and second mortgage with the same lender, the review can take about three months.

•       With two or more mortgages with different lenders, it can take four months or longer.

Your real estate professional and attorney, with your authorization, can work with your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.

When the bank does respond… it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one.

Don't expect a short sale to solve your financial problems.
Here are some post-short sale conditions to keep in mind:

•       Your lender may ask you to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.

•       Any amount of your mortgage that is forgiven by your lender may be considered income, and you may have to pay taxes on that amount.

•       Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will generally affect your credit score less severely than foreclosure or bankruptcy.