So you've decided that a short sale is the best option for you? If you're unsure or haven't considered the ramifications, please read Should I Sell my Home as a Short Sale? Once you have made the decision, there are a few steps you should take.
Hire a Real Estate Agent
Short Sales are more complicated than your typical real estate transaction, so it is important not to go it alone on this type of deal. The bank will pay your agent's commission and wrap it into the amount that the sale is "short". When you interview agents, be sure to ask about short sales. The agent should have an intimate knowledge of the process and should be experienced at doing them. Short sales are only recently becoming frequent, so you may not be able to expect that your agent has done 20-30 of them, but he or she should have been involved in actually doing short sales unless he/she is working under the tutelage of a broker who has.
Complete Your Paperwork
The first step is to complete an authorization letter for your bank which allows them to speak to your Real Estate Agent about the details of your loan. It is illegal for the bank to share information without this. The letter should include the name(s) of the borrower(s), social security number(s), loan number(s), property address, and your agent's name, address and contact information. Once they have accepted that authorization (usually 2-3 days), your agent will be ready to facilitate the transaction. The bank will tell you or your agent what paperwork they require once you have an offer. They will also most likely send a financial questionaire for you to complete. This is called a Work-Out Package. It is a good idea to complete it as soon as possible (or as soon as you get an interested party) so that if you are missing any documentation you can produce it before you have an offer.
If you have a 1st and 2nd mortgage with different banks, you will be doing this twice. In addition, the deal will be a lot more complicated because both banks have to agree and many times, there is squabbling between them as to how the money will be split. If either bank says, "No," then you don't have a deal and can't sell the house. Because the 2nd mortgage is in the second lien position, they run the risk of getting nothing if the deal falls too short. So it helps to know ahead of time the price range that you will realistically be able to fall into. That way you can at least find out if they "might" be willing to work things out. The ideal situation would be having only one mortgage or at least having both mortgages with the same bank.
List the Home
Your agent will list and market your home as normal, although here in Tucson we are required to indicate that it is a short sale in the "Agent Only" remarks on the Tucson MLS. It is advisable no matter where you live to have your agent indicate that because a short sale requires more waiting on the buyers' part and not all buyers are willing or able to do that. Your agent will likely recommend a list price that is right at or just below what other homes are selling because you need to sell quickly to avoid foreclosure (the bank will only wait so long).
Accept an Offer
Once you receive an offer, you will review it and decide whether to accept it or not. A good offer on a short sale will have the buyer paying all closing costs, although the buyer may offer substantially less than the asking price. If you are uncomfortable coming up that short, you can counter or you can just submit it to the bank, hoping that they will play "bad guy" and counter the offer themselves. Consult with your Agent about the best course of action regarding each offer that you receive.
Submit the Offer to the Bank - Start Waiting
Once you have the offer, sign to accept it and then your agent will submit it to the bank along with the rest of the documents required from the Work-Out Package. Different banks have different waiting times, but 2-3 weeks is not uncommon at all. As a woman from a bank told me today, "This is a timely process." I knew that, but that doesn't stop me from calling them frequently to advocate expediency on my client's behalf. It is helpful to have an agent who is willing to call the bank daily (or at least every other day) to be the "squeaky wheel" and help push your paperwork through.
Some banks want to do a walk-though of the home. Others do an appraisal or get a Brokers Price Opinion (BPO) to help determine what the home is "worth" in the current market. Once they have gone through their individual process, you will get a response in writing from them. Sometimes they accept the offer and sometimes they counter with an amount that they are willing to accept.
The negotiation on price is between the bank and the buyer, so at this point, you must be patient and wait. Your agent should keep you apprised of the progress and before too long, you should have a deal.
Close the Deal
Once the price has been agreed upon by the buyer and the bank, you can proceed to closing. Depending on the buyer, this could be another week or another month. It should be written in your contract what the anticipated closing date will be or it can be X days after bank acceptance.