“How to do a Short Sale…”

In real estate a short sale is not always a pleasant transaction.

There are many ways to lose a home but signing away ownership in a  way that destroys credit, embarrasses the family and strips an owner  of dignity is one of the hardest. For home owners that may no longer afford to  keep mortgage payments current, there are alternatives to bankruptcy or  foreclosure proceedings. One of those alternatives is called a “short sale.”

Over half of my deals in within the last few years are short sales. That’s how prominent short sales have become.

When lenders agree to do a short sale in real estate,  it indicates the mortgage lender is accepting less than the total amount due. Not every mortgage lender will accept a short sale or discounted payoffs, especially if  it would make more financial sense to foreclose; additionally, not every seller and not all properties qualify for short sales.

Should you be considering buying a short sale, there might be drawbacks. For your protection, I suggest that all borrowers:

• Obtain legal counsel from a competent real estate lawyer
• Call an accountant to determine short sale tax ramifications

As a real estate agent, I am not licensed as a lawyer or a CPA and  cannot advise on those consequences. Except for particular conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007,  keep in mind the I.R.S. could 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 a few states, this amount is known as a deficiency. A  lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

While all lenders have various requirements and will require that a  borrower submit a wide array of documentation, the following measures will give you a fairly good idea of what to expect.

Contact the mortgage lender
You may have to make a half dozen phone calls before you find the  person responsible for managing short sales. You don’t want to talk to  the “real estate short sale” or “work out” department, you want the  supervisor’s name, the name of the individual qualified to making a  decision.

Submit Letter of Authorization
Lenders typically do not want to reveal any of your personal  information without written authorization to do so. Should you be working  with a real estate agent, closing agent, title company or lawyer, you  will receive better cooperation if you write a letter to your lender giving the mortgage lender permission to talk with those certain interested  parties about your loan. The letter should include the following:

Property Address
Loan Number
Your Name
The Date
Your Real Estate Agent’s Name & Contact Information

Preliminary Hud
This really is an estimated closing statement that indicates the sales price you  expect to receive and the costs of sale, unpaid loan balances,  outstanding payments due and late fees, along with real estate  commissions, if any. The closing agent or lawyer should be able to  prepare this for you, if you do not understand how to calculate any of these  fees. Should the bottom line demonstrates cash to the seller, you will probably not  need a short sale.

Hardship Letter
The sadder, the better. This testimony of facts describes how you got  into this financial mess 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 aren’t particularly empathetic to circumstances 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
Should your bank statements reflect unaccountable deposits, big 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 drop. If this is part of the reason that you cannot sell your home for enough to pay off the mortgage lender, this particular fact should be substantiated to 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:

Active on the market
Pending sales
Solds from the past six months.

Purchase Agreement & Listing Agreement
Once you reach an agreement to sell with a potential buyer, the mortgage lender will require a copy of the offer, along with a copy of your listing  agreement. Be prepared for the lender to renegotiate commissions and to decline to pay for particular items like home protection plans or termite inspections.

If it all goes well, the mortgage 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 bureaus, however realize that  the lender is under no obligation to honor this request. Credit report status is not always negotiable but is definitely worth the try.