How to Perform a Short Sale

In this article, you'll learn the steps of a short sale and what the Lender is looking for. It will provide the basic information for a successful short sale with a little luck.

Difficulty: Moderate

Instructions

Things You'll Need:

• Your financials
• 2 months of bank statements (don't show a ton of money!)
• 2 years of tax returns
• Hardship letter - a real tear jerker!
• Contract
• HUD Sheet or Net sheet showing the bank how much money they will net after the sale
• Listing agreement with the realtor

1. 

   Find a competent Realtor that understands the Short Sale Process and has a lot of experience negotiating with mortgage companies. This is extremely important since the “Loss Mitigator”, or person representing the mortgage company, typically has 200+ short sale s they are responsible for. So if any of their requirements are not met, or the values being presented are not justified, they will simply put your short sale at the bottom of the stack. Again, we at 1-800-JUS-Sold have lots of experience and have full time foreclosure specialists that do nothing but negotiate with mortgage companies on a daily basis.

2. The Realtor will contact the mortgage company, with your permission, once a contract has been received. A letter called “Authorization to Release Information” must be filled out and signed by the homeowner. The Realtor will then fax this form to the mortgage company. It includes your name, address, loan number and social security number.

3. The Realtor will call the mortgage company and request the documents required to do a short sale. This usually requires several calls ensure the correct department handling the file. Once the mortgage company has confirmed receipt of the Authorization, they will inform the realtor what documents they require as well as where to fax the documents. Here are a few of the items that are typically needed:
   Hardship Letter
   This is simply a letter explaining why the homeowner fell behind on their loan payments. This is an opportunity for the homeowner to really explain how troubled their situation really is. The more tears this letter can generate, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment.
   Preliminary Net Sheet or HUD-1
   This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. The realtor, closing agent or lawyer should be able to prepare this document. The bottom line number must not show any proceeds going to the homeowner.
   Proof of Income and Assets
   This simply states what income, if any, you currently receive. Usually 2 pay stubs and 2 bank statements will work. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. 2 years of tax returns are also requested. Sometimes 1 year will suffice is available. They want this information to see if you have anything of value they can request in exchange for accepting the short sale.
   Listing Agreement and Purchase Contract
   The mortgage company requires these documents to ensure that the property was listed and that there is a valid contract. The mortgage company usually requires a Proof of Funds letter from the buyer as well to ensure they have the ability to buy and afford the home.

4. A Negotiator or Loss Mitigation Consultant (LMC) is assigned. This is the person that will “work” the file.

5. An appraisal or Brokers Price Opinion is ordered. After receipt of the required documents, the mortgage company will hire an appraiser or a 3rd party realtor to verify the value and condition of the property. Some mortgage companies assign the Negotiator after the appraisal is received but that’s simply a procedural step with some mortgage companies.

6. The Realtor will negotiate with the mortgage company and the new buyer to “get the deal done”. There is no guarantee that either party will accept the price and terms of the contract or counter offer, but having a Realtor experienced with short sale s as well as the Jacksonville market will ensure the best chances of getting a deal done.

7. Hopefully, a final contract is accepted by the homeowner, buyer and mortgage company, then the properties closes. The new buyer usually gets the property at a reduced price with built in equity, the mortgage company minimizes their losses by reducing their payoff early in the foreclosure process and the homeowner may have “bruised credit” but not a foreclosure or bankruptcy on their credit. On rare occasions, the mortgage company has required the homeowner to sign a promissory note for a fraction of the loss they are accepting. This is rare, and has happened when the loss is above $100,000.

Tips & Warnings

• The entire short sale process typically takes between 60-90 days after the Authorization is faxed to the mortgage company. Sometimes its done much faster and sometimes is takes much longer. Quite often the mortgage companies will “misplace” documents, change fax numbers, fire loss mitigation consultants, delay processing the short sale, etc. All of which we have experienced numerous times and have built in safeguards to minimize the time when these circumstances occur. All of this varies by mortgage company but you can rest assured you’ve got the right team in place to protect your interest and work diligently on your behalf.
• Be very careful with the Realtor you choose to assist you with a Short Sale. Most are inexperienced and perform typical realtor practices regarding pricing and advertising. If they haven't performed at least 10 short sales, you're taking a risk with them.
• Ensure your realtor is "selling" the Lender on why they should accept the contract price being offered.

Resources

• What is a Short Sale?