Info for Sellers

Short Sale Information for Sellers

We have a lot of experience with handling short sales.  We have developed excellent relationships with the asset managers of many of the top lenders and we have experience negotiating with them.  We give you upfront answers and realistic expectations.  If you are facing foreclosure, a short sale is usually one of the best options.  You need to make sure you work with a Realtor who has experience with Short Sales though and one who is easy to communicate with.  People don’t realize that it takes everyone working together (the Lender, the Homeowner, and the Realtor) to complete a short sale successfully.  I’ve seen so many deals fall apart because the Realtor didn’t follow up with the Lender or the Homeowner didn’t gather the necessary documents in a timely manner.

The documentation you’ll need to accomplish a short sale.

While many lenders will have varying requirements and may demand that a borrower submit different types of documentation, the following should be treated as a guideline of what is required in a pursuing a short sale.

Contact your lender immediately

Call your lender and let them know you are trying to short sale your home.  Have them document this on your account and get the persons name that you spoke with.  It’s a good idea to call the following day to make sure this was done.

Submit a letter of authorization

Your lenders will not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. You should include the following information: name, address, loan number, third party agents involved and contact information on both the agents and yourself.

Preliminary estimate of your lenders proceeds

A preliminary HUD-1 settlement statement that indicates the sales price you are under contract for and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your third party agent (realtor, title company or lawyer) should be able to prepare this for you. The bottom line should not indicate any net proceed to the seller.

Your circumstances, in the form of a hardship letter

A complete description of the facts that brought you to financially challenging situation and why you have a valid reason for the lender to accept less than full payment. Lenders can understand many circumstances are unavoidable, loss of job, death, divorce, etc., but they are not very compassionate to situations involving dishonesty, misrepresentation or criminal (or criminally negligent) behavior.

A complete financial statement

Be truthful about your current financial situation and disclose your assets and liabilities. Provide information on savings accounts, money market accounts, stocks or bonds, cash, real estate or anything of tangible value. Your lender will need to be assured that you cannot pay back any shortfall in the short sale transaction.

Proof of valuation

Many homeowners caught by the current downturn of the real estate market have lost significant equity in their home. This is probably why you cannot sell your home for enough to pay off the existing lien. You need to substantiate this value to the lender through a proof of valuation. In declining value to the lender you could present a fully completed appraisal, a comparative market analysis (CMA) or a broker’s opinion of value.

Your purchase agreement and listing agreement

The lender should want a copy of the executed offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home protection plans or seller concessions inspections.

If your package is complete, the facts are accurate and the circumstances speak for themselves, the lender will approve your short sale. Within the ongoing communications and negotiations, you should ask that the lender not report any adverse credit references to the credit reporting agencies, although they would be under no obligation to accommodate this request.

Why would a lender allow a short sale?

You need to know the lender’s perspective in a short sale.

Your mortgage lender will be considering a number of factors in deciding whether to approve a short sale. A review of your circumstance, whether you deserve a break due to financial hardship caused by uncontrollable circumstances such as death, divorce, layoffs or illness. They will also take a hard look at whether it would be cheaper (or more profitable to them) to simply proceed with the foreclosure process on the house, make any necessary repairs and sell it through an agent. How many other real estate owned (REO) properties they have in their portfolio will affect their decisions as well.

The process

When a borrower falls behind on their payments the loan is usually sent to the lender’s loan loss mitigation department. Most lenders also consider short loan payoff sale requests in their loss mitigation departments.

Your chances of success with your lender improve if your communications with them is organized and complete. Your contact with your mortgage lender’s loss mitigation department should be professional. You’ll want to send them the appropriate documentation and provide them with any additional information that they may require.

Keep in mind that lenders will approve a short sale as a last resort to avoid foreclosure. If a home was purchased at the height of the market and has depreciated considerably, the home may be “upside down”, or is worth less than is owed. The lender may consider a short sale. The same is true for a property was recently refinanced at 100% or on an option arm leaving the property without equity.

Keep in mind that lender is not in a position to manage property they are in the lending business. A home, while it’s sitting vacant waiting for sale, is accruing costly insurance premiums, taxes, repairs and bringing in nothing. The lender is losing even more because the lost interest they could be receiving on their asset. They have their money invested, but are making nothing from the investment until the property sells. If a short sale can be accomplished, their money is returned and they are no longer losing money on the investment. In a short sale the bank may even be willing to finance a new owner, making it a win/win for all parties.