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How To Do A Short Sale

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How To Do A Short Sale

While a short sale holds many benefits for the homeowner when compared to foreclosure, or even loan modification – which is often merely a short term solution – a real estate short sale is significantly more complicated than a standard real estate transaction. Some Realtors estimate that it involves 4-5 times more work than a standard real estate listing. For starters, the homeowner, preferably with the help of an experienced short sale Realtor, will have to prepare a short sale package demonstrating hardship and financial distress.

Additionally, a short sale in real estate can drag on for months after the seller accepts the buyer’s offer. Where as in a standard real estate transaction the deal would be close to complete at this stage, in a short sale this is where the real work begins. Depending on the lender, this could be months of short sale negotiation, of following up with loss mitigations to move the short sale approval process forward, as well as managing the buyer’s expectations as the process drags on.

The good news is that the majority of this extra work will be carried out by your short sale Realtor. Even better, a short sale generally comes at no cost to the seller, as the lending institution typically pays the listing Realtor’s commission.

How To Do A Mortgage Short Sale

It should be apparent now that a short sale is not a transaction to be taken lightly. Not only is the short sale process sometimes slow and lengthy, the short sale process is fraught with potential pitfalls that can derail the transaction. There are rarely any set rules or guidelines to go by, and the rules that do exist are always changing and can differ greatly from lender to lender. What works with one lending institution may not work with another lending institution with different internal policies. Additionally, complications such as multiple lien holders on a single property can add an additional wrinkle that will cause all but the most experienced short sale Realtors to throw their hands up in frustration.

The most important step in executing a successful short sale is to obtain the services of an experienced short sale Realtor who has been successfully performing short sales for many years. Not every Realtor has the knowledge and capability to handle a short sale listing. An experienced short sale specialist has been through the short sale process many times over and is familiar with the expectations and requirements of the various lending institutions, the financial and legal implications of a short sale, and the stress and uncertainty you may be experiencing as the seller. An experienced short sale specialist will know how to close a short sale and negotiate the most favorable terms possible under your circumstances.

How Do Short Sales Work For The Seller?

While it is extremely important for the homeowner to seek the guidance of a short sale specialist, it’s also important for the homeowner to have a basic understanding of how to do a short sale and understand their role in the short sale process.

In addition to choosing an experienced short sale expert to manage the short sale process, the How to short salehomeowner will need to assist the Realtor in putting together the necessary documentation for the short sale package. The short sale package is a bundle of documents required by the lending institution. It is used by the lender to decide whether or not to grant short sale approval. This documentation will demonstrate the seller’s hardship, their inability to meet their debt obligations, and the market value of their home. The specific requirements of the short sale package will depend on the lending institution, but generally it will require the inclusion of the following documents:

  • 3rd party letter of authorization
  • Seller’s letter of hardship
  • Completed financial statement
  • Filed tax returns
  • W-2s
  • Payroll stubs
  • Bank statements

The realtor will submit the completed short sale package, the listing agreement, the executed purchase offer, the buyer’s financing pre-approval letter, and their earnest money deposit check to the lender. At this stage, the waiting for short sale approval begins. At least, for the seller the wait begins. The realtor – or a 3rd party short sale negotiator hired by the realtor – will be busy working with the loss mitigation officer assigned to the file, following up with further information and supporting documentation, or pushing the file along if it gets delayed. More importantly, the short sale negotiator will be attempting to obtain favorable short sale conditions for the seller, including forgiveness of their debt, having the costs of the short sale born by the bank, and in some cases even how the seller’s credit will be reported to the credit bureaus.

How To Do A Short Sale in Real Estate – After Receiving Short Sale Approval

When short sale approval is finally received, it’s important to close the deal as soon as possible, as some short sale approvals have a time limit as short as 30 days. While the short sale is close to complete, this is another area in which additional last-minute complications may sometimes arise, as the buyer – potentially frustrated after months of waiting – may be looking to back out of the deal. In some cases, the buyer’s financing situation may have changed as well. However, if all goes well, your deal will close and your short sale will be completed.

Upon completing a short sale, the homeowner may be able to purchase another home in as little as 2 years. Depending on the short sale agreement negotiated by the realtor or the short sale negotiator, the homeowner may be free of their debt, or they may still be personally liable for a portion or the full amount.

The potential success of a short sale is based largely on the seller’s situation and the experience and knowledge of their realtor. An experienced realtor will ensure the process goes smoothly, while a realtor lacking experience with short sale listings may be overwhelmed with the additional complications that come with a real estate short sale. As a seller looking to short sale your home, your primary objective should be to find a qualified short sale specialist to handle your listing. Everything else should fall into place.

To contact your local short sale specialist call for more information today 1-877-737-4903.

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Comments (1)

Sharalyn Kluke
Keller Williams Seneca - Seneca, SC
Sharalyn Kluke, Realtor, Keller Williams Realty

Hi Mike. This is all very useful information. I am currently working on a short sale now. I am not an experienced short sale agent by any means.  I sort of walked into the process.  I had a listing on which the sellers stopped making payments. A buyer came along and offered less than what the sellers owed.  So, we asked for a short sale.  

I think the most frustrating part for me was that the bank did not explain exactly what was needed for each document they requested.  For example, I was told that the seller has to sign and date the P&L statement after I was asked simply for a P&L statement. Or, you have to have the original bank statements because online print offs do not count.  All they asked for is bank statements.  When I asked for a specific list of demands, the bank representative said, "We tell you what you are lacking when we reject the documents online."  Oh, okay, I don't mind doing all of this 2 or 3 times.  I have nothing better to do!  Yes, it is a frustrating process and I can see how having experience would help.

Good article.  Thanks for sharing.  I think I'm seeing the light at the end of the tunnel although I won't count my chickens!

Nov 21, 2011 08:14 AM