For both buyers and sellers, the steps to a short sale may seem blurry and complicated. Buyers may get discouraged with the long short sale approval process, while sellers may find that their lack of knowledge surrounding real estate short sales stressful and concerning as they ponder the financial and legal consequences of the process.
While the short sale process may be tricky and full of potential complications, for a realtor experienced and familiar with the short sale process it will be fair routine. An experienced short sale specialist can guide you through a successful short sale and lend advice, guidance and support along the way.
Real Estate Short Sale Process – Step By Step
Below are some of the steps you will go through with your short sale specialist in order to ensure a successful short sale and a fresh start for you and your family. While the specifics and documentation required may vary a bit from lender-to-lender or state-to-state, the general short sale process will be the same.
1. Find a Qualified Real Estate Short Sale Specialist
In the current market, there are many listing agents who – while they may be wonderful realtors – simply do not have the experience to successfully execute a short sale. There are a lot of bumps and hairpin turns on the path to a successful short sale, and a lot of things can go downhill in the process. You’ll want an experienced short sale realtor who can help you navigate this tricky road.
Be sure that when you’re looking for a short sale Realtor, you analyze their previous track record and experience with short sales. You’ll want an experienced short sale realtor that has successfully helped many homeowners through the short sale process, and who can achieve the same results for you.
2. Prepare a Short Sale Hardship Letter
In order to get your lender to release their lien on your home and permit a short sale, you’ll need to type up a hardship letter giving account as to why you require a short sale. The more sympathetic and burdensome your situation, the better your hardship letter will sound. Banks are also much more favorable towards homeowners who are in a financial bind because of external or personal circumstances such as unemployment, medical emergencies or illness, divorce, death, bankruptcy. Your short sale specialist may assist you with the specific content of your short sale hardship letter.
3. Prepare a Short Sale Package
There are three basic requirements that must be met for a bank or mortgage lender to grant a short sale: the seller must demonstrate hardship, the seller must prove that the fair market value of the home is less than that of the mortgage, and the seller must demonstrate that they are unable to meet their debt obligations. In order to prove the latter, the homeowner will need to prepare a short sale package for submission to their lender.
Each lender may have different submission requirements, but they are generally looking for proof that the homeowner is unable to honor their debt. It is important to seek the assistance of an experienced short sale realtor in preparing your short sale package, but the basic contents of your short sale package will likely consist of the following:
• Your hardship letter for short sale
• Letter of authorization – this document allows your lender to disclose information to and work with your short sale specialist, lawyers, or other 3rd parties involved in assisting you with your short sale. Your letter of authorization will include your loan reference number, your full name, the date, your agent/lawyer’s name as well as contact information.
• Completed financial statement
• Recent bank statements
• List of recent comparable sales or comparative market analysis – In order to prove that your home will not sell for a sufficient amount to cover your mortgage, you will need to substantiate this fact with a comparative market analysis. Your real estate agent will prepare this for you.
• Your recent payroll stubs
• Two years of your annual tax return
• Two years of your W-2’s
4. Put Your Home on the Market
You’ll sign a listing agreement with your short sale realtor, though it will be subject to short sale approval from your lender. Your realtor will then put your home on the market and solicit buyer offers as they would with a regular listing.
5. Accept an Offer
You’ll accept an offer that is close to or at fair market value. The lender will not approve a short sale if the offer is significantly below market value.
6. Submit Buyer’s Preapproval Letter, Earnest Money Deposit, and Seller’s Short Sale Package to Lender for Short Sale Approval
Once you have accept the offer, your short sale realtor will submit the buyer’s preapproval letter, their earnest money check, as well as the short sale package you and your realtor have prepared to the lender. At this stage, most lenders have an internal process for managing short sale approvals, and a loss mitigator will be assigned to your file. It may take anywhere from a few weeks to many months for your short sale to be approved or rejected.
This is another part of the process where it’s important to have a short sale specialist working for you. An experienced short sale realtor who has experience in short sale negotiations is significantly more likely to get your short sale approved and obtain forgiveness for the deficiency. An experienced short sale negotiator is also more likely to obtain short sale approval faster by consistently following up with your lender and pushing the process forward.
7. Receive Short Sale Approval
If your short sale is approved, the bank will issue a short sale approval letter. By this point, you may have been waiting a few weeks, or perhaps even half a year for short sale approval. The length of the short sale approval process will depend primarily on the lender, though in some cases your short sale negotiator may delay or speed up the process.
8. Deal closes & Lender Releases Lien
The buyer will deliver the funds, the seller will deliver the deed, and the lender will release their lien on the property. Depending on the short sale agreement negotiated by your short sale negotiator/short sale realtor, you may now be free of your debt obligation. Alternatively, it is possible that you didn’t qualify for debt forgiveness and you will still be personally liable for the deficiency between the proceeds of sale and your initial debt.
While it is not always possible to obtain forgiveness of the deficiency in every short sale, this is yet another reason you’ll want to work with a short sale specialist rather than just any listing agent. A realtor with experience in short sale negotiations ensures that you have the best chance possible of obtaining full forgiveness of your debt. Experienced short sale realtors have plenty of experience working with loss mitigations in negotiating forgiveness of short sale deficiencies and can do the same for you. With the right expertise and handling, your short sale might just be your ticket to a fresh start, so be sure it’s in the right hands.
**Rodney Forbes is a Realtor® and registered broker with Forbes Realty of South Florida, based in West Palm Beach Florida. Rodney and his team work in Palm Beach, Broward, Martin and St. Lucie Counties. As a recognized expert on short sales, Rodney has been featured on radio and national web conferences for agents. Rodney has also authored the book “Should I Short Sale My Home?”
Forbes Realty of South Florida also specializes in REO asset disposition. Rodney works with several banks and asset managers in the Palm Beach County area. Rodney is the main author for the popular real estate blog South Florida Real Estate Report. You can find a wealth of information regarding bank foreclosures, short sales, real estate news and local real estate trends.
For more information, please call Rodney at 561-337-4810 or email Rodney@ForbesRealtyOnline.com