Qualifying for a Short Sale
There are many factors that will determine if you qualify for a short sale. A short sales expert will be in touch with helpful information. Click here now to compare the differences between a foreclosure and a short sale. To determine if a short sale of your property is a possibility, please complete the form below.
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How To Do Short Sales
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale."
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
If you are considering buying a short sale, there could be drawbacks.
For your protection, I suggest that all borrowers:
· Obtain legal advice from a competent real estate lawyer
· Call an accountant to discuss short sale tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.
· Call the Lender
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision.
· Submit Letter of Authorization
Lenders typically do 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. The letter should include the following:
o Property Address
o Loan Reference Number
o Your Name
o The Date
o Your Agent's Name & Contact Information
· Preliminary Net Sheet
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. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.
· Hardship Letter
The sadder, 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. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
· Proof of Income and Assets
It is best to be truthful and honest about your financial situation and disclose assets. 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. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
· Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
· Comparative Market Analysis
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a Comparative Market Analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
o Active on the market
o Pending sales
o Solds from the past six months.
· Purchase Agreement & Listing Agreement
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the 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 termite inspections.
Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.
One of the first items an agent will need is to get a Letter of Authorization signed by the owner. This authorization when faxed into the lender will allow your agent the authority to speak with the lender regarding your loan. This does not give the agent the authority to make any changes to your loan.
What I do: First fax in an authorization along with a letter requesting information on owner assist programs, status of the loans, payoff information and short sale requirement package to be faxed back to me. I first give the lender time to circulate it to the correct department and contact person, then I call to verify that they received the fax and if they have authorized me to speak to them as a follow up.
Once I received the information I requested, I will notify the owner.
Required Documents
When you go through the short sale process your lender will require certain documentation.
Remember, the lender does not want to take the home back through foreclosure. That is a last resort for both the homeowner and the lender. The lender would rather accept a short sale as long as the borrower can show an inability to pay the mortgage. Each lender has their list of required documentation. Therefore, the first step is to give your Realtor signed authorization to speak with the lender about your account. (See below for a sample authorization letter.)
Your Realtor will then request a "short sale package" from the lender. Most lenders require the following documentation.
· Hardship letter. A handwritten letter may be better to explain the borrower's situation and requesting a short sale. It should describe why the borrower cannot make their mortgage payments and their fear of possible foreclosure. It should be a plea for the lender to consider a short sale.
· Two years of tax returns and W-2's. Remember to provide signed copies of tax returns.
· Signed IRS Form 4506 "Request for Copy of Tax Form". This is so that the lender can verify that the submitted returns actually match the originals sent to the IRS.
· Two most recent bank statements and retirement account statements. Be sure to copy both side of double-sided statements.
· Two most recent pay stubs
· Current debt, payments and a household budget
· Documentation supporting the hardship (termination of employment letter, disability letter, doctor bills, etc.)
· A current Comparative Market Analysis (CMA) from a real estate broker or appraiser
· Estimated net sheet from a title company. The settlement statement will show all of the expenses related to the sale with the seller receiving zero.
· A copy of the executed sales contract with buyer's proof of funds or loan commitment.
Never submit an incomplete package. Some lenders receive hundreds of requests a day. It is not uncommon for a loss mitigator to have 200 - 400 files in which they are working. Incomplete packages will be set aside and you will have to start over again.
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
If you are considering buying a short sale, there could be drawbacks.
For your protection, I suggest that all borrowers:
· Obtain legal advice from a competent real estate lawyer
· Call an accountant to discuss short sale tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.
· Call the Lender
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision.
· Submit Letter of Authorization
Lenders typically do 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. The letter should include the following:
o Property Address
o Loan Reference Number
o Your Name
o The Date
o Your Agent's Name & Contact Information
· Preliminary Net Sheet
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. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.
· Hardship Letter
The sadder, 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. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
· Proof of Income and Assets
It is best to be truthful and honest about your financial situation and disclose assets. 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. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
· Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
· Comparative Market Analysis
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a Comparative Market Analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
o Active on the market
o Pending sales
o Solds from the past six months.
· Purchase Agreement & Listing Agreement
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the 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 termite inspections.
Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.
One of the first items an agent will need is to get a Letter of Authorization signed by the owner. This authorization when faxed into the lender will allow your agent the authority to speak with the lender regarding your loan. This does not give the agent the authority to make any changes to your loan.
What I do: First fax in an authorization along with a letter requesting information on owner assist programs, status of the loans, payoff information and short sale requirement package to be faxed back to me. I first give the lender time to circulate it to the correct department and contact person, then I call to verify that they received the fax and if they have authorized me to speak to them as a follow up.
Once I received the information I requested, I will notify the owner.
Required Documents
When you go through the short sale process your lender will require certain documentation.
Remember, the lender does not want to take the home back through foreclosure. That is a last resort for both the homeowner and the lender. The lender would rather accept a short sale as long as the borrower can show an inability to pay the mortgage. Each lender has their list of required documentation. Therefore, the first step is to give your Realtor signed authorization to speak with the lender about your account. (See below for a sample authorization letter.)
Your Realtor will then request a "short sale package" from the lender. Most lenders require the following documentation.
· Hardship letter. A handwritten letter may be better to explain the borrower's situation and requesting a short sale. It should describe why the borrower cannot make their mortgage payments and their fear of possible foreclosure. It should be a plea for the lender to consider a short sale.
· Two years of tax returns and W-2's. Remember to provide signed copies of tax returns.
· Signed IRS Form 4506 "Request for Copy of Tax Form". This is so that the lender can verify that the submitted returns actually match the originals sent to the IRS.
· Two most recent bank statements and retirement account statements. Be sure to copy both side of double-sided statements.
· Two most recent pay stubs
· Current debt, payments and a household budget
· Documentation supporting the hardship (termination of employment letter, disability letter, doctor bills, etc.)
· A current Comparative Market Analysis (CMA) from a real estate broker or appraiser
· Estimated net sheet from a title company. The settlement statement will show all of the expenses related to the sale with the seller receiving zero.
· A copy of the executed sales contract with buyer's proof of funds or loan commitment.
Never submit an incomplete package. Some lenders receive hundreds of requests a day. It is not uncommon for a loss mitigator to have 200 - 400 files in which they are working. Incomplete packages will be set aside and you will have to start over again.
Copyright © 2006-2012 Elegance Realty, LLC, All Rights Reserved.
Disclaimer: The information provided on this website should not be constituted as legal advice.
The content is intended to provide general information about the short sale and foreclosure processes, and should not be acted upon without the counsel of a qualified REALTOR®, attorney, and tax expert.
Disclaimer: The information provided on this website should not be constituted as legal advice.
The content is intended to provide general information about the short sale and foreclosure processes, and should not be acted upon without the counsel of a qualified REALTOR®, attorney, and tax expert.
