Short Sale Process
From the outset, the short sale process looks pretty daunting. Since it is going to require your active - and proactive - participation, it is tempting to throw in the towel and let a foreclosure occur. As complicated as the short sale process may appear at first glance, it is still worth a closer look because a short sale can save you an enormous amount of heartache and money for years to come if you are willing to stick with it. Banks and the government are also recognizing the difficulties many homeowners are having with short sales and they are working to make the process easier because successful short sales are in everyone's best interest, particularly now during the current real estate downturn.
A breakdown of the basic steps of the short sale process is outlined below.
Step 1: Evaluation of the Loan/Contact with Lender:
Before engaging in the short sale process, the borrower needs to make sure that they are an ideal candidate for a short sale. Ideally, the borrower should be "underwater" with their loan - i.e., they should owe more than their home is worth, making it impossible to sell the home and repay the full amount of the loan. Once the practicality of a short sale has been demonstrated, the borrower needs to contact the lender about the issue. Most lenders handle short sales through their loss mitigation department, but you should always ask your lender where to be directed for more information regarding the short sale process.
Continue reading: Evaluation of the Loan
Step 2: Completion of Hardship Letter:
The borrower should write a clear, concise hardship letter to their lender, explaining why a short sale is their very best option. The letter will act as a preface to all of the other documentation; in effect, it will be a cover letter making a clear case to accept your short sale request. Ideally, the hardship letter should demonstrate the short sale as the best and most practical solution (market conditions, inability to refinance, etc.) while also showing the human side of the issue at hand (you've been laid off from work, have had health issues, etc.). However, a sad story without a grounded, practical argument won't win your lender's approval, so make sure your personal circumstances are also framed by why a short sale is necessary from a practical standpoint.
Continue reading: Completion of Hardship Letter
Step 3: Preparation of Documents:
A lender cannot decide whether or not a short sale is worth their while without plenty of documentation. The burden of proof and responsibility for compiling all of the necessary documents lies with the borrower, who should work to collect as many support documents as possible. When presented together, the documents should clearly demonstrate the need and justification for a short sale.
Continue Reading: Preparation of Documents
Step 4: Submission of Short Sale Package:
Once all of the documents have been collected and the hardship letter has been written, everything needs to be put together into a short sale package. This package should then be formally submitted to the lender, who will use it to determine whether or not to approve a short sale. Some lenders may have specific requirements about what should be included in the short sale package, so make sure you contact your lender and follow their instructions exactly. Failure to do so can result in rejection of your short sale request or cause delays in the approval process.
Continue Reading: Submission of Short Sale Package
Step 5: Negotiation of Short Sale:
A back-and-forth generally ensues between borrowers and lenders after the short sale package is submitted. The borrower may have to answer additional questions about his finances or other aspects of his situation prior to the lender making a final decision.
Continue Reading: Negotiation of Short Sale
Step 6: Closing of Short Sale
If the short sale is approved by the lender, closing generally needs to happen quickly, usually within 30 days of approval, and require that a new buyer already be under contract to purchase the house. If for some reason the house falls out of escrow, it may be possible for the bank to quickly review the seller's finances again and issue a faster approval. It is possible for a sale to fall apart because the short sale approval process is lengthy, and a potential buyer could grow tired of waiting indefinitely and cancel the sales contract. If this scenario happens, the upside is that you already know the lender's bottom line of what they will accept for a short sale, and can use that information when negotiating with a new potential buyer on the sales prices. Keep in mind that a new review and approval will likely be necessary if the original sale fell through, although it could be much faster if most of your circumstances and the real estate market conditions haven't changed much. Once you have an approved short sale and a willing buyer that closes escrow, the borrower is relieved of the majority of the debt and can work out an arrangement for the remaining balance.
Continue Reading: Closing of Short Sale
Maintaining your commitment to the real estate short sale process can often times be the most challenging part. It is important to remember that anything worth having is worth working for. Although the time spent on this process may seem arduos, once it is over, you will have saved yourself an enourmous amount of financial and related problems for many years to come by avoiding foreclosure.
Next: Short Sale Contract Evaluation