If your property is worth less than what you owe:
The Short Sale Process
Definition: A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
If the unpaid balance of a loan is, say $400,000 and the property sells for $320,000 under a short sale the lender might accept $320,000 as payment in full.
Banks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.
A few examples of a hardship are:
- Reduction of income
- Medical emergency
- Job transfer out of town
The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines. The basic procedure is similar from bank to bank. The seller’s short sale package will most likely consist of:
- Letter of authorization, which lets your agent speak to the bank.
- Completed financial statement
- Seller’s hardship letter
- 2 years of recent tax returns
- 2 years of recent W-2s
- 2 Recent payroll stubs
- Last 2 months of bank statements
Writing the Short Sale Offer and Submitting to the Bank
Banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to market value. The Short Sale Price may have little bearing on market value and may, in fact, be priced below the comparable sales.
After the seller accepts the offer, the listing agent will send the following items to the bank:
- Listing Agreement
- Multiple listing sheet
- Purchase agreement
- HUD settlement statement
- Buyer’s mortgage approval letter
- Earnest money
- Seller’s short sale package
If the package is incomplete, the short sale process will be delayed or denied.
The Short Sale Process at the Bank
Below is the typical short sale process at the bank:
- Bank acknowledges receipt of the file.
- A negotiator is assigned.
- A BPO is ordered.
- The file is sent for review or to the PSA.
- The bank may then request that all parties sign an Arm’s-Length Affidavit.
- The bank issues a short sale approval letter.
- This process takes 2-6 months, sometimes longer depending on circumstances.