What To Do Before You Attempt A Short Sale

Before attempting a short sale

understand many mortgage lenders today are willing to work with homeowners who fall behind on payments, offering them opportunities to repay the outstanding amount in a varient of wasy – a revised payment plan, loan modification, refinancing, etc. It is oftern less expensive for a lender to help you keep you home than to go through foreclosure

Preparing For Foreclosure:

Understand that foreclosing is an expensive, time-consuming process for lenders, costing them an average $50,000 per property, according to a report by the Joint Economic Committee of Congress. In a foreclosure, the lender tries to sell the property at auction – which may also result in lower net proceeds than the outstanding mortgage amount.

If the property does not sell at auction, the lender repossesses the property and puts it on the market for sale as lender-owned real estate. At this stage, the home has become a non-performing asset for the lender, impairing the lender’s ability to make loans. The fact is, lenders want your money not your home. That’s why your lender may be willing to offer you a workout plan so you can keep your home.

Examples of Qualifying Hardships
The more temporary your repayment problem is likely to be, the better the chance you can work something out with your lender. A sampling of hardships that may qualify for short sale lender approval include:

  • Unemployment
  • Reduced Income
  • Divorce
  • Separation
  • Illness/Medical Bills
  • Too Much Debt
  • Death of Spouse
  • Death of Family Member
  • Payment Increase
  • Business Failure
  • Job Relocation
  • Inheritance
  • Damage to Property
  • Military Service
  • Incarceration
  • Tax/Insurance Increase
  • Among Other Hardships

In addition, you may qualify for the government-sponsored Making Home Affordable Program.

The important point is to contact your lender’s loss mitigation department early and explain your situation – before the lender initiates foreclosure. Doing so will help you minimize damage to your credit and avoid incurring late fees and legal charges on top of your unpaid debt.

Here’s Where Our Expertise Comes In
In the event you cannot find a way to keep your home, conducting a lender-approved short sale may be your best alternative to foreclosure. If so, ask your lender what requirements must be met to win approval for a short sale. Most lenders’ loss mitigation departments have a short-sale package of materials explaining the process, requirements and documents needed from you.

From this point forward, you’ll need to work with an experienced, knowledgeable real estate professional to help you navigate the complicated process of winning lender approval for a short sale.


9 Steps To Conduct A Lender-Approved Short Sale

If you are unable to avoid foreclosure any other way — loan modification, refinancing, etc. — getting your lender’s approval for a short sale may be your best option. The process, however, is complex and varies somewhat depending on the lender’s requirements and the seller’s specific situation. Here are the basic steps you will need to go through. When you hire us (Step 3), we will guide you to prepare all the documents your lender requires and follow-up directly with the lender.

9 Steps Of Every Short Sale

  • Step 1: Contact your lender. Call your lender and indicate you want to conduct a short sale of your home. You may be referred to a loss-mitigation department or other representative for further information. Ask the lender's representative to send you their short-sale package, which will include your lender's forms and requirements.
  • Step 2: Gather information and documents. Your lender will require that you submit a short-sale package, including a variety of financial documents, such as tax returns and account statements, along with a hardship letter detailing why you can no longer make your mortgage payments. Gather all the items listed by your lender. When the time comes, the package you submit to your lender must also include your sales contract with a buyer and an estimate of net proceeds from the sale of your home, based on that contract. Of course, we'll be happy to help you prepare these documents and any others your lender requires.
  • Step 3: Contact us. We'll meet with you to estimate your home's current market value and discuss your financial situation to determine whether you meet your lender's requirements for a short sale. At this meeting we will review the gathered documents, and any additional items needed. If your situation appears to qualify for a short sale, we'll discuss how together we can put you on the path to lender approval.
    Together we'll sign a listing contract that assigns us as your representative for the sale of your home. Before your lender/servicer will share information with us about your mortgage situation, you will need to provide a letter of authorization allowing them to do so.
  • Step 4: Prepare your home for sale. We'll advise you on how to put your home in the best condition possible so as to attract a buyer quickly. The very minimum preparation of your home should include a thorough cleaning and removal of clutter and excess personal belongings that could turn off prospective buyers. We may suggest other improvements such as fresh paint, lawn/yard care, etc. to ensure your home appeals to buyers.
    We may also suggest you order a home inspection. Having your home inspected before listing allows you to make repairs before buyers arrive. Showing interested buyers a good inspection report, with repairs made as needed, will give them confidence that your home does not come with any hidden problems they would have to pay for later.
  • Step 5: Price you home to sale. Price is key. A critical element to short-sale success is setting a listing price that is just right - low enough to attract buyer interest and encourage a purchase-offer AND high enough to be acceptable to your lender. To find the right price, we'll prepare a Comparative Market Analysis (CMA), factoring in recent sales prices of comparable properties (including distressed, bank-owned and equity sales), current list prices for comparable homes and other relevant factors. Don't worry. We'll consult with you and help you find the right price to sell.
    We'll list your property with photos and a description of its features on the multiple listing service and alert our network of contacts about the sale of your home. We'll also prepare a comprehensive marketing plan to give your home sale the widest exposure possible.
  • Step 6: Negotiate with buyers. When a buyer makes a purchase offer, we'll negotiate the price and terms of the sales contract on your behalf. It is critical, at this step, to educate buyers about the short-sale process to ensure they have the patience and commitment to weather delays and complications -- and get to closing/settlement.
  • Step 7: Submit your short-sale package to your lender. We'll help you gather the offer and all required documents for the comprehensive short-sale package to submit to your lender. If the lender is open to your short sale, they will contact their foreclosure department to put a hold on foreclosure proceedings.
    In evaluating your short-sale request, the lender will order an appraisal or a broker's price opinion (BPO), asking a knowledgeable real estate professional to render an opinion on the market value of the property (by looking at sold prices of comparable properties, the cost of making repairs and any other factors that might impact the property's value).
    Assuming everything is to the lender's satisfaction, if the buyer's offer meets or exceeds the lender's net-proceeds requirement, chances are the lender will accept the short-sale offer and "forgive" the difference between the offer and the outstanding mortgage. If the buyer's offer is too low, the lender may contact us with a counterproposal. In this case, we would work to negotiate with the buyer for a higher offer.
  • Step 8: Fulfill the terms of the contract. As your lender is considering approval of your short sale, we will help you and your buyer stay on track fulfilling the terms of the contract, such as scheduling inspections, surveys, appraisals, etc.
  • Step 9: Go to closing/settlement. If all goes according to plan, you'll reach the closing/settlement table to sign final documents transferring the property to its new owner and satisfying your obligation to your lender.


Costly Short Sale Mistakes To Avoid

Be aware that the process of conducting a lender-approved short sale is more time consuming and complicated than a traditional home sale. Here’s why:

Complications of Lender-Approved Short Sales

Many lenders will not agree to short sales in advance —
sellers must have a purchase offer in hand before asking for lender approval. As short sale specialists we know the only thing that will stop many lenders from letting the foreclosure train leave the station is a buyer’s valid offer.

The buyer must have the patience to wait —
perhaps weeks or months, for your lender to approve the short sale. It takes a very motivated buyer to enter into such a transaction knowing that the deal could ultimately fall through.

Many short-sale purchase offers come with numerous contingencies designed to protect the buyer.
For example, the buyer’s inspection contingency may be written so as to allow the buyer to back out of the deal if anything negative appears in the inspection report. (This is another reason to put your home in the best condition possible before listing it for sale.)

Securing your lender’s approval can be a long process.
In fact, if your loan has been assigned to a servicer — who handles your loan for the investor who owns it — much of the negotiations will occur with the servicer’s representative. Only when the servicer is satisfied with the short sale will it be placed before the investor for approval.

If you have more than one loan secured by your home —
you will have to either pay off those other loans or negotiate with those lenders to release their liens on your home so the short sale can proceed. It may be necessary for you to hire a reputable company or an attorney to negotiate with lien holders on your behalf.

Still, lenders approve short sales every day. The best path to success is working with a real estate professional that thoroughly understands the process and can guide you through it. That’s why our services are particularly valuable. We’ll help you price your home appropriately, find a committed buyer for your short sale, negotiate with your lender’s representative and keep the short-sale process on track through closing/settlement.

Working together we’ll get your home sold as quickly as possible.


How We Can Help You Avoid Foreclosure

Although there are exceptions, lenders generally do not “pre-approve” borrowers to conduct a short sale. Instead, you (the seller) find a buyer who makes a purchase offer. With our help as your real estate agent, you negotiate a sales contract with the buyer. We will present the contract as part of a short-sale package for your lender’s consideration. In many cases, your lender will then communicate with you and with your us, because we represent your interests in the short-sale transaction, about the disposition of your short sale.

What we do to win short-sale approval from your lender.

1. Finding the right buyer.
A critical element to the success of your short sale is finding a buyer who has the patience to go through the process.

Bear in mind, a short sale can take weeks — even months longer to accomplish than a traditional home sale. In addition, it’s not uncommon for attempts to secure lender approval on a short-sale fail for one reason or another — the seller failed to prove a hardship situation, other parties with claims on the property could not be satisfied, the seller’s lender didn’t like the contract with the buyer, etc., etc.

We employ all our professional skills, knowledge and networks not only to find a buyer who is willing and able to purchase your property, but to negotiate a sales contract with the buyer that is likely to win your lender’s approval for a short sale. (For example, some lenders will not accept a buyer’s offer if the sale price is not less than 90% of market value or nets 85% after all closing costs are deducted.) Just as important, we educate your buyer and his or her real estate agent about the short-sale process, keeping them interested and informed as the process moves forward.

2. Presenting your short-sale package with a proposal to your lender.
Does a short-sale request have to be presented by a real estate agent? Perhaps not in every case, but lenders much prefer to work with professional real estate agents on short-sale transactions. In fact, if you hope to get the attention and cooperation of your lender, it is essential you work with a real estate agent who has experience working with short sales, who knows all the ins and outs of working with lenders and who is committed to your short-sale success. That’s where our expertise is invaluable to our sellers.

A short-sale package typically contains these documents, among others: authorization letter to negotiate on your behalf, signed sales contract, broker price opinion(s), preliminary HUD-1 settlement sheet, hardship letter, 2 months of bank statements (W2, 1099, tax return, etc.), budget worksheet, photos of home (interior, exterior), repair estimates, latest comparables, local market statistics, and other documents relating to current market value of your home.

We have the knowledge and experience to determine upfront whether your situation would likely qualify you for a lender-approved short sale. We understand what lenders are looking for in a short-sale request, and we make sure our clients provide all the information and documentation needed to start the process efficiently and effectively.

3. Staying on top of the process from start to finish.
The fact is lenders are currently swamped with requests for loan workouts and short-sale proposals. Many lenders are understaffed and/or operating with newly trained personnel who each may be expected to handle hundreds of cases at a time. In this environment, even a small oversight or glitch in the process could cause your short-sale request to end up in the reject pile or on the back burner.

To help ensure lender approval for your short sale, we will:

  • Establish contact and a good working relationship with your lender's representative or negotiator.
  • Submit all required documentation at one time to your lender's representative/negotiator and quickly follow-up on any additional requests for information.
  • Prove to your lender that your situation qualifies for a short-sale approval.
  • Prove that your home is being sold for what it is worth in the current market.
  • Keep all parties -- you, your buyer and your lender -- informed and up-to-date on the status of your home sale.