How to Prepare A Short Sale Package
In order for you to get short sale approval from your lender you must first submit a short sale package containing various documents that demonstrate that you meet the qualifications required for a real estate short sale. The short sale package you submit will show to the lender that a) your property’s fair market value is below the value of your mortgage b) the borrower has suffered significant and legitimate hardship making it impossible for them to fulfill their debt obligations.
While your short sale realtor will assist you in preparing your short sale package, you will need to gather certain financial documents and assist in the preparation of a short sale hardship letter in order to complete the short sale package and seek short sale approval.
The specifics of each short sale package may vary depending on the lender. Your lender will provide a specific list of documents that must be included with your short sale package, but in general your short sale package will include the following documents:
- Letter of authorization
- Short sale hardship letter
- Preliminary net sheet
- Tax returns
- W-2s
- Payroll stubs
- Copies of bank statements
- Comparative market analysis
Letter of Authorization
Legally speaking, your lender is only authorized to disclose your personal and financial information to you. In order for your short sale specialist to help you through the short sale approval process, you will need to include a letter of authorization with your short sale package in order to give the lender permission to disclose to and deal with your short sale realtor. Your letter of authorization should include:
- Your name
- Your realtor’s name and contact information
- The date
- Your loan reference number
A letter of hardship for a short sale explains and illustrates the homeowner’s distress and why the homeowner is in a position where they are unable to meet their debt obligations. This letter is an extremely important part of the short sale package. As the term suggests, the short sale hardship letter should include mention of the hardship that has rendered the borrower incapable of covering the deficiency upon sale, and unable to make present or future mortgage payments. Examples of legitimate hardship generally accepted by lenders include:
- Divorce
- Death
- Medical emergencies or major illness
- Unemployment or significantly reduced income
- Bankruptcy
Lenders will be less sympathetic to homeowners who were involved in real estate speculation. Additionally, here are some examples of stressors that would not be accepted by lenders as hardship.
- Poor purchase decisions – If the homeowner claiming hardship spends their income on unnecessary consumer goods
- Purchasing another home – The fact that your home no longer suits your family, even due to the birth of additional children, does not constitute a hardship in the eyes of lenders.
- Unhappy with your home – No matter the circumstances of your house or neighborhood, the fact that the physical condition of your house or the state of your neighborhood significantly reduces your quality of life does not constitute a hardship.
Your short sale realtor can assist you with the preparation of your letter of hardship for short sale.
Preliminary Net Sheet / HUD1
This is an estimated balance sheet showing the expected net result of:
- The expected sale price of your home
- Cost of sale
- Unpaid loan balances
- Outstanding payments & late fees
- Real estate commissions & other sale fees
The preliminary net sheet will usually be prepared by your short sale specialist. The bottom line of the preliminary net sheet should not show cash to the seller, else there would be little reason for the short sale in the first place.
Tax Returns, W-2s, and Payroll Stubs
Your lender will want proof to substantiate your inability to meet your debt obligations. As part of this assessment, they will require your recent tax returns, W-2 forms, as well as payroll stubs. If these indicate that you have assets or sufficient income to meet your debt obligations, the lender may not grant the short sell. Additionally, while the seller may grant the short sale, this assessment of the homeowner’s assets and income may play a role in determining whether the homeowner will be personally liable for the deficiency, should a short sale be granted.
Recent Bank Statements
As part of the lender’s assessment of your financial situation, they will want to see copies of all your recent bank statements. Some lenders will want you to document and account for each and every deposit and significant withdrawal. If there is any unusual activity such as large cash withdrawals or deposits, you will also want to explain these items in your short sale package.
Comparative Market Analysis
One of the requirements of a short sale is that the value of the home is less than the value of the mortgage. A comparative market analysis, also known as a CMA, is included in the short sale package in order to substantiate the fact that the fair market value of similar homes – and thus the seller’s home – is less than the value of the homeowner’s debt obligation. The comparative market analysis will be prepared by your short sale specialist.
Short Sale Approval Process
Along with your short sale package, your short sale specialist will also submit to your lender the listing agreement, executed purchase offer, as well as the buyer’s financing preapproval letter and earnest money deposit check. This will get the ball rolling on the short sale approval process. However, starting the short sale approval process is only the beginning of the process. The short sale approval process may still take several weeks, or even several months depending on your lender.
Choosing the Right Short Sale Specialist
Preparing your shot sale package is only part of your short sale specialist’s role in the short sale approval process. Your short sale realtor may also act in short sale negotiations with the loss mitigation assigned to your file. Your short sale realtor will be instrumental in getting your short sale approval as well as negotiating a forgiveness of your outstanding debt.
For a short sale to be successful, it is vital to seek the guidance of an experienced short sale realtor to prepare your short sale package and participate in short sale negotiations. Choosing a real estate agent who specializes in short sales and has a long track record of successful short sales ensures you are doing everything possible to maximize your chances of achieving a positive outcome.
To Contact one of these experienced Realtors Contact the Short Sale Specialist Network today! 1-877-737-4903
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