Selling Your Residential Home as a Short Sale

Are you facing a situation where you need to sell your home for less than is owed and you just don't have the financial ability to pay? In most cases the goal is to prevent a foreclosure. A foreclosure will have a greater impact on your credit score and ultimately the cost of many services that depend on credit to establish the amount you pay for these services. By selling your home at a price that will be acceptable to the lender you can escape a foreclosure and have the lender give debt forgiveness.   Many of us today are facing this big problem and few have any experience to know what to do. As unfortunate as this experience is, you still need to arm yourself with information to make the most of it. This article will provide some basic information on what to do and how to work with your Realtor® to achieve your ultimate goal. A Realtor who has the knowledge and time to work with the lender or servicing agent of the lender can be invaluable to your success. An experienced Realtor is going to want to know the answers to some questions to determine what your current situation is. Is there a foreclosure notice and date? Is there a second mortgage or line of credit? Also was the 2nd or line of credit used to purchase the home or additions to the home (this has a tax implication which the seller should look into with their tax pro or CPA). Are the loans with the same or different lender? The seller will need to fill out a hardship letter and submit it to the lender? They must be willing to do this to have the lender accept a short sale. Has the seller contacted the lender(s) as soon as possible to see if the loan can be reworked in a way that remove the need to sell as a short sale. A seller that can get the loan modified or adjusted in some other way changed to remove the need for a short sale can be far more beneficial. Has the seller talked to their tax professional or CPA on tax consequences of Debt Forgiveness? Is everyone on the home loan(s) in agreement on the short sale? Has the seller received notices from the lender and what do they indicate? Copies of loan statements available? Foreclosure notices? Once the seller and Realtor have reviewed the current situation, the seller needs to make sure the Realtor has the experience to negotiate the sale and the list price for the property. When an agreement has been reached to list the home, both the Realtor and Seller now have to begin the work of getting the property marketed, initiate contact with the lender and finalizing the process to complete the sale. Lets start with initiating contact with the lender. First you must contact the lender's "Loan Mitigation Department" to get their contact information. Typically this department will need the following information: Letter to the department from the lender indicating the Realtor is authorized to help you in the sale of the property. You should have the property address, loan number, agent (brokerage, name, address and contact information) on the letter to complete the authorization. A hardship letter which indicates why you can't make the payments. The last 30 days of paystubs to show income. Major bills like medical, dental and others to support your expense claim. The last two months of bank statements and make sure you have the whole statement. Budget statement so the income and expense can be compared A copy of the property tax bill and a copy of the home owners insurance. This material can be submitted to the lender at this time. More than likely, the lender will hold on to it until a contract has been submitted. If this is over a long period of time, financial information may have to resubmit with the latest information. Now you are ready to execute on your marketing plan and get a buyer. Don't forget to make it very obvious that this is a short sale in all your marketing materials. I would suggest that you make sure the buyer’s agent has their buyer fill out the short sale disclosures so that every knows that the process may take much longer than a normal sale. Patience is the key word. Once you have a contract in hand and it is complete with all counters and addendums, you are ready to begin working with the lender to make sure they have all the information needed and ready for the time a processor will be assigned. When the agent has the contract and supporting information, the agent should prepare their price opinon letter to support the contract price that is to be submitted. A price opinon should have the following information: Description of the property - MLS document from current listing or previous would help. Condition of the neighborhood and is it declining, stable or growing. Photographs of the property and of any special situations that can be observed. Maintenance that might be needed and estimates of the repair or deffered maintance. Current market conditions Net sheet (with contract price) The information you have put together should be faxed to the Loan Mitigation (ie, Loan Negotiation, etc) department. It is important that the loan number be placed on each and every page that is faxed to the lender. Pages that cannot be quickly identified to a specific loan may be shredded. This can delay the whole process since a negotiator will often put aside the short sale documentation if it is not complete. Working with a negotiator requires that you fit your communication style to fit their needs. Flexibility is the key to success. Once a negotiator has reviewed the materials you have sent they will make up a demand letter that is sent to through their system for approval. When you receive the demand letter that will reflect how much they are willing to take, expenses they are willing to pay and anyother condition(s) that must be adhered to in order to complete the sale. The demand letter can make or break a sale. As an example, if the buyer wants to have their closing cost paid from the seller, the demand letter may state an amount for all expenses that does not support what if on the estimated HUD statement under seller paid expense. At this point the parties have several options. The buyer can decided not to accept the deal and cancel. The owner and seller of the property can make up the difference (don't count on this happening). The buyer can change their offer to bring the seller's cost in line with the demand letter by picking up the costs themselves. Note that this will create another HUD statement which must be sent back to the negotiator and could create additional delay. The Negotiator may have to do a new demand letter adding days to the final approval. Finally, all parties have a contract and resulting HUD that meets the needs of the lenders demand letter. The last step of the process is to send the final HUD showing all final payoffs with the demand letter to the negotiator to show that all conditions have been met. The Negotiator sends back final approval, the deed is recorded and now the buyer is ready to move in to their new home. Sounds complicated, it can be. I have not been fortunate enough to have every step go smoothly. Every one seems to have at least one major glitch and some minor ones. That’s why you need someone who is willing to work the system, be considerate of all players in the highly emotional process, and be flexible enough to keep the deal moving. No one wins when the purchase is not completed. Give me a call if you have any questions or comments on the short sale process. Everyone I do is a new learning experience. Let me help you through this period as your representative. Call me at 623-606-8861 for information on purchasing or selling your home.