What do banks look for when they review the information on a loss mitigation request? (Step 1 in a short sale)
Most banks require the owner to provide 2 years of tax returns, two current months of bank statements and 2 recent pay stubs along with a complete financial statement and a hardship letter just to start with. They have their departments also reverify employment or unemployment dates. All of that is then compared to the time frame of the slow or non payment records. If all of these things match up and there is verification of a life changing event then in the majority of the cases a Lender will begin discussing with the owner a work out that may include a short sale. If there is for any reason a signal that the income loss is temporary then a loan modification or forbearance is the Lenders first choice.
After all of this is completed the banks then want to have an idea of the true market value of a house and will order a drive by BPO to see what the fair market value of the property should be if the house is for sale. From there they will make a decision on the costs they, the bank, must incurr to sell the house, weigh the likelihood of the home owner to repay the modified loan or should they just cut bait and sell at a loss.
Now as the agent who is helping the owner through this process know this...banks want to rework the loan first but they also know that 80% of loan modifications or forbearance work outs fail within the the first 24 months. This in many cases will make a short sale a viable option to the lender.