How to Short Sale Your Home

Selling a home is no easy feat, especially in today's real estate downturn. Short sales have become extremely common, and in some areas, the norm, for selling a property. A short sale is a distress sale in which the owner owes more on the mortgage than the property is worth. The sale of the property is contingent upon the seller gaining approval from their loan servicer or lender to sell the property at current market value. The lender can either agree and accept the loss, agree and make the seller/borrower repay the debt or part of it, or deny the short sale altogether and simply foreclose. The short sale process has many moving parts. The lender, borrower, buyer, investor, mortgage insurance company, escrow and real estate agents all need to work together and agree to specific terms in order to successfully close a short sale transaction.

Things You'll Need

• Real estate broker
• Hardship package (from lender)
• Proof of financial hardship (on paper)
• Offer to purchase (from buyer)
• Escrow company

Instructions

Communicate With the Lender

1. Call the lender who is servicing your home loan and tell them about your financial distress. They will send you a hardship package, also known as a short sale package or loan modification package, if you are already behind on payments.

2. Fill out the package completely. Include every piece of financial information requested, such as income taxes, bank statements, pay stubs, proof of unemployment, letter of explanation and a thorough list of your monthly expenses.

3. Return the completed package via certified mail, fax, or e-mail.

4. Follow up with the lender frequently until you get a response on the status of the file. It typically takes about 30 days to find out whether you qualify for a short sale on your home.

Obtain An Offer

1. Hire a real estate agent who's well-versed in the short sale process to list your home.

2. Authorize your agent to communicate with the lender on your behalf and in writing.

3. Prepare your home for sale so that you may obtain offers quickly.

4. Accept the best offer based on your agent's recommendation and proof of the buyer's qualifications to purchase the home.

5. Send the lender the complete Offer to Purchase, along with updated financial information and any additional forms they request.

Obtain Short Sale Approval

1. Wait for a response from the lender, following up with them frequently to get status updates.

2. Prepare to move out as soon as you receive short sale approval from the lender in the form of an approval letter stating all terms, conditions, and monies. Lenders typically give no more than 30 to 60 days to close escrow.

3. Fill out the necessary escrow paperwork for selling and transferring title provided by the escrow company. Complete the necessary seller's disclosures provided by your real estate broker, local and state law.

4. Make sure the lender has all your necessary paperwork in order to grant a final approval of the short sale and permission to record the sale with the city. Acknowledge the terms of the short sale agreement by signing the lender's approval letter and returning it promptly.

Tips & Warnings

• Always obtain legal and tax advice from the appropriate professionals before short-selling, as tax consequences vary from state to state.

• An experienced short sale agent can mean the difference between selling the home or going into foreclosure, according to Realtor Joe Hernandez of Prudential Real Estate in San Diego.

• Having more than one lender requires twice the work, as both lenders must agree to a short sale.

• When trying to gain permission from the lender to do a short sale, sending items piece meal will most likely slow down the process on the lender's end.

• The buyer shouldn't be anyone that has ever had an interest in the property or is related to you in any way. The short sale must legally be an "arm's length transaction," as described by the Department of Revenue.

• Lenders vary in their response and turn times and on a case-by-case basis. Secondary investors and mortgage insurance involvement may lead to a longer short sale approval process as they are third parties that the lender must obtain approval from as well.

References

• Department of Revenue: Arm's Length Sale