If you’re struggling with your home mortgage, you might be interested in getting a short sale package approval from your bank. Before I explain how to get that done, let me remind you that I am not an attorney and you are best served by talking to a real estate attorney who is expert in the short sale process.
The other disclaimer I owe you is that I believe you should do everything you can to avoid going down this route – even if you have to start borrowing money from other sources ( as long you can reasonably pay them back). Try to hold on to your home unless there is no choice. Even if you have a low credit score, try to refinance your mortgage. A short sale will impact your financial future and hurt your otherwise high credit score. It is less harmful than allowing the property to be foreclosed on, but it is not a step to be taken lightly.
Assume you owe more on your home than it is worth and you haven’t got the resources to make the payments or pay off the loan. Further assume that you are delinquent on the mortgage for several months and are facing foreclosure. In these circumstances, the bank holding your mortgage might consider letting you do a short sale rather than going through the process of foreclosure. That means that the bank will accept less than full payment on your mortgage. Before you decide on a short sale, call the bank and try to negotiate a lower payment first. This may be much easier to get them to agree to.
If you do decide on a short sale, the first thing you need is to find a broker who specializes in short sales. Get references. Ask how many short sales she’s handled over the last four years. Get references. This is a very specialized transaction, and you don’t want to be the guinea pig for anyone. But just because you find a broker, don’t fall asleep at the wheel. You still have to do a good amount of work. You won’t be selling your home yourself, but it will feel like it.
You want to find an honest realtor who won’t pocket your listing. You want her to advertise your property and do her best to get someone willing to pay the highest price possible. Some brokers are less than honest. They will find a friend or make a special deal with someone to try to low-ball the bank and make a killing on the property. Then, the buyer kicks back money to the agent. This is illegal, but it happens often. The bank gets hurt and so do you. The bank may be unwilling to make the deal if it looks suspicious, and as a result you may be forced into foreclosure. Get a sense of the fair market value of your home before you begin the process, and don’t go for any funny business.
Having said this, a short sale is an arduous process. It can take several months or longer to get an answer back from the bank. As a result of that, your buyer will only be willing to get involved in the deal if the price is very attractive.
Prepare a Short Sale Package
There are a number of documents you’ll need to prepare for the bank that holds your current mortgage. Your agent will help prepare the documents. That list includes:
a. Cover letter
b. Release of information authorization
c. Hardship letter and any proof of hardship
d. Your financial statements, including two years of W-2’s, pay stubs, bank statements and tax returns
e. Any repairs needed on the property
f. Comparable sales information
g. Contract of sale
You might have to hire someone to help prepare this package. If so, don’t be shy about asking the buyer to split the cost. Your bank must approve you and your package because they are the ones accepting less money than you owe. If they think you have enough resources to pay your mortgage, they’ll reject your short sale offer.
There are two very important caveats. First, no matter what your agent or the banks says, the deal isn’t done until the transaction is recorded at the county assessor’s office. Banks draw out the process because they want to see if the market will improve and result in a better offer from someone else.
And keep in mind that if you short sale your home, you may get an IRS 1099-A form. This basically means you’ll pay taxes on the loan amount that was forgiven. To top it off, keep in mind that just because you complete the short sale, the bank still might come after you for the loan deficiency. That’s another reason why you should do everything you can to avoid a short sale on your home. So, if you decide to go this route, consult with a real estate attorney. Make sure your attorney does whatever possible to make sure the bank can’t come back to you for the loan loss.