How to Sell Your Home in a Short Sale

With the short sale steps plan, I will walk you through the short sale from start to finish and be able to answer some of the most common questions and concerns that many homeowners have when faced with doing a short sale. From contacting the lender in the beginning of the process to rebuilding your credit once the short sale has transpired. Let Short Sale Steps be the directory to your short sale.

Short Sale Steps

The short sale process can vary, but it will generally work as follows:

Step 1 Pre-Qualification – Contacting the Lender

First step is you have to consider if you are qualified for a short sale. It involves the process of contacting the lender and explaining to them your condition and your intention to sell the house to avoid the foreclosure. (An experienced short sale real estate agent or foreclosure defense attorney will do most of this for you). Each lender has different qualification guidelines, but they generally will want you to meet the following:
1. Your property (house) should be worth less than the value of your loan.
2. The property should have dropped in value.
3. Your mortgage should be in default or on the verge of default.
4. Your property should be listed on the MLS for at least 60 days.
5. You must be able to show a financial hardship that you are no longer capable of paying your loan and that you don’t even have assets to satisfy this loan. Just be sure to understand that short sales will not make you any money or even save your equity. That is not the purpose of a short sale. The objective here is to sell your house as fast as possible to get you out from under your mortgage and avoid paying for an expensive foreclosure proceeding.
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. Depending on who the lender is that you are dealing with you will either need to ask for the loss mitigation department or the short sale department. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. You want the supervisor’s name and the name of the individual capable of making a decision.

Step 2 Submitting the Authorization Letter to the Lender

When 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 an authorization letter and permission to talk with those specific interested parties about your loan. The letter should include the following:

• Property Address
• Loan Reference Number
• Your Name
• The Date
• Your Agent’s Name & Contact Information

Step 3 Hire an experienced “short sale” real estate agent

Banks prefer to negotiate a short sale with Realtors. The real estate agent will be needed to initially place the property on the market by listing in the local Multiple Listing Service (“MLS”), locating a buyer to purchase the property and negotiating the short sale with the bank. Banks find it difficult to work directly with the homeowner because they are already “on the hook” for the amount they owe. Why negotiate when you don’t have to! It could take 2..3..4.. or more months battling it out with your lenders. This period is difficult for most homeowners because they are sitting around waiting for an answer. It might not seem like not much is progressing, however if chosen wisely, your real estate agent is negotiating on your behalf. The bank and your Realtor negotiate commissions (which are always at a reduced rate), so this is something the homeowner need not be concerned with and frankly, they have no control over. It is a fairly easy process if you work with the right real estate agent and he/she follows the process, most agent don’t like, won’t do and don’t understand it. A good real estate agent will give you an update on a weekly basis. It is critical you work with someone with experience. . .after all most Realtors can take a short sale listing. . but only a few know how to make it a success and create a win-win for you and the bank.

Step 4 Verify the Value of your Property

The bank will require a fair market estimated value of the property. This is when your real estate agent steps in with their many tools of determining market values and provides this information to the bank. This should include properties that are active on the market, pending sales, and solds from the past three to six months.
Calculate the Cost’s
With this step you and your real estate agent will be able to establish an estimated net bottom line once the short sale is in the closing process. You and/or your real estate agent can enlist the help of a local title company or real estate attorney and ask, as a seller, what the closing costs will be. Generally the seller closing cost’ can run anywhere from 1 to 5 percent of the sales price of the property, however every state varies. Determine the amount owed against the property. This will be the total of all loans against the property. Subtract the total amount owing against the property, including closing costs from the estimated market value of the property. On a short sale, this will be a negative number. The local closing company should be able to prepare an estimated HUD-1 Settlement statement, which would include all of the figures associated with the transaction.
Step Submit Short Sale Package to Lender
The lender will request that you submit what may seem a mountain of paperwork to get the process started. Generally the lender will be able to send you what is called a “short sale package”. Below are the documents that the lender will request to be submitted or completed with their formatted documents.
A. 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 real estate agent, 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.
B. 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. The lender will also want to see two of your most recent pay stubs.
C. 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.
D. Two years of tax returns and W-2′s.
Remember to provide signed copies of tax returns.
E. 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.
F. Hardship Letter
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.
G.Broker Price Opinion (BPO)

A BPO is needed for the lender to verify the value of the home. It is similar to an appraisal, but less costly and quite as detailed. It provides the lender a reliable accurate opinion of the property value and what it should sell for rather than an appraisal that will tell the lender what the value should be. Your real estate agent, should be able to perform the BPO.
Once you have completed the packet make sure you review it carefully with your Realtor. Different lenders have different requirements, but all lenders have some basic requirements that you’ll need to know to get your short sale packet complete. Remember that every lender is different, and will have different guidelines. If you follow the outline of this article, you should be able to complete a short sale packet quickly, easily, and accurately.
Find a Buyer
The next step in the short sale process is finding a buyer. With your property being listed on the MLS during the beginning process of the short sale, your property should have been receiving tons of exposure. Now would be a good time for your Realtor to have open houses, and use all of the marketing strategies available to get your property noticed by the next potential buyer.
Purchase agreement & Listing agreement
Once you have found a buyer the next step is to complete a purchase 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, in which the Realtor will submit to the lender. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as Homeowner Warranties or termite inspections.
Once the offer is in the lender’s hands, it is up to the lender to decide if the short sale is approved or not. Don’t be surprised if your short sale bid is rejected and countered. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you “steal.” Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value. If the offer is rejected, then ask the buyer to counter their offer so you can submit an offer that the lender will accept, as long as it is reasonable and within fair market value.

Then have your Realtor submit the counter offer to the lender. It may take a few rounds of counter offering on both sides before an offer gets accepted. However, be prepared that the deal must just fall through and you may have to wait for another buyer with a higher offer or the worse scenario is that your home goes to foreclosure sale. Of course, the whole point of the short sale is to prevent that, but not every transaction can be turned into a short sale.