The Short Sale Process

A Short Sale is a process which allows the borrower to sell their home for less than what is owed on the mortgage loan and allows the seller to avoid having their credit score hit with a foreclosure penalty. Although, there is still a penalty given for short sales, the time to buy a home is shortened with a short sale versus a foreclosure home. A foreclosure can stay on your credit report for up to 10 years while a short sale can range 3 to 5 years.
Banks grant short sales for two main reasons; the seller has a hardship and the seller owes more on the mortgage then the home is worth.
A few examples of a hardship are:
  • Unemployment/Reduced Income
  • Divorce
  • Medical Emergency
  • Job Transfer Out-of-Town
  • Bankruptcy
  • Death
The Short Sale Process for Sellers:
  1. Contact the lender to discuss/request a short sale package for the mortgaged property and determine the lender’s process for completing a short sale, successfully.
  2. The borrower/seller is to send a letter of hardship to the lender. The letter is to include all financial difficulties, in which the lender can research to validate the seller’s financial situation.
Additional documents are to be included with the letter are:
  • Letter of authorization, which allows your agent and attorney to speak with the bank
  • HUD-1 or preliminary net sheet
  • Completed financial statement
  • Last 2 years of tax returns
  • Last 2 years W-2s
  • Last two months bank statements and investment accounts
  • 2 months most recent pay stubs and other financial records
  1. The lender will review the short sale settlement package and consider forgiving the remaining loan balance and all expenses (property taxes, etc.), real estate commissions and other expenses associated when closing.
  2. A BPO will be ordered by the mortgage lender to determine a Broker Priced Opinion (BPO) to examine the prices of the home in the market by looking at comparables.
  3. The lender will assign a processer that will analyze collected information and negotiate offer to be presented to mortgage insurers and investors as needed
  4. The processer will communicate any stipulations or changes, if needed, to the seller/buyer and notify agent and seller of final decision from investor or give status update if there is a delay 
Short Sale Buyers
The Short Sale Process for Buyers:
  1. Hire a Realtor to protect your best interests, especially when dealing with short sales.
  2. Search for Short Sale Properties
  3. Get an appraisal and home inspection BEFORE the lender has approved your offer.
Short sales can be quite lengthy and need a good real estate agent, a lender willing to work with you on the loan and a buyer
  • Many short sales fail because the mortgage company is unfamiliar with the local market. Don’t expect a quick answer as they research the comparable home sales.
  • Be ready for anything. A short sale can be finalized with the bank in 5 weeks or take as long as 5 months.
  • Consult an accountant, lawyer and real estate agent with your important decision in deciding on a short sale.
  • The mortgage company does not want to own the property, that’s the last thing they want to do.