Do you need to Short Sale your House?
Today there are options for distressed homeowners, before your “options” were pretty limited.
It came down to three choices:
- Sell the house via a short sale.
- Let the house go into foreclosure.
- File for bankruptcy.
- You must have a hardship, such as job loss, major illness or divorce. Lenders won’t consider a short sale unless you can prove to them that you have a hardship that prevents you from meeting your monthly mortgage obligation.
- You must owe more on the house than its current market value. This situation defines the short sale.
- You must be insolvent. The lender will want proof that you have insufficient resources, such as savings, to pay down the loan.
Things to Consider Before a Short Sale
When attempting to decide if a short sale is your best option, consider the following:
Don't make your decision on whether or not to short sell your home based on the misinformation in the marketplace about short sales. Let's work through your situation and decide what can, may, will, or will not affect you and YOUR specific situation.
Can the Lender Sue You for the Deficiency?
If the lender obtains a deficiency judgment, or if they hire a third party collection company you will be chased down, sometimes many years after the short sale, for the amount owed after the sale of the property – the deficiency is the amount between what you owed on the loan and the proceeds of the sale the the lender received.
I work with your mortgage company (or companies) on your behalf to make sure they waive the deficiency! As a short sale expert, I know what to look for in the lender’s fine print.
Any property sale process can be lengthy and typically quite stressful and a short sale is no different. It may, in fact, take a little longer and involve a slightly higher level of stress. As the seller, you'll need to keep the property in top condition during the marketing period. You’ll review offers, sign paperwork, we will adhere to the banks requirements and processes, and I will work with the buyer or their agent to provide updates, status, and motivation.
I will be with you every step of the way and we will work together to make the process as easy as possible and I will be there to answer your Real Estate questions.
I will market the house, get you a great offer, negotiate with your lender or lenders, get it closed, and get you moving on!
Getting your "docs" in a row...
- Hardship Letter.The hardship letter is perhaps the most important part of the short sale package. It needs to tell the story about how the sellers got into their present situation, what they have done to find a solution and why there are no solutions apart from a short sale presently available. It must contain the loan number, and be signed and dated.
- Last 2 Bank Statements. All bank statements, for every bank account are required for submission. Front and back. If there are large deposits or withdrawals on those statements, you may want to include a separate explanation because the processor will most likely wonder about it. Answer the question before it is asked.
- Last 2 Tax Returns.Submit as part of your short sale package, your federal tax returns for the last 2 years, signed and dated, every schedule and every single page. If you have not filed your tax returns for the past 2 years, you will need to include a letter of explanation and extensions.
- Last 2 W2's.Your last two years' of W2s will disclose your salary as reported by your employer to the IRS. If you are self employed, you will probably need to send 1099s and a profit and loss statement.
- Last two payroll stubs. Regardless of how you are paid, whether it is monthly, weekly or bi-monthly, submit your last two payroll stubs. If you received a bonus or any other unusual increase of salary, you may want to include a note that explains this sudden increase.
Submit Letter of Authorization
Lenders will not disclose any of your personal information without written authorization to do so. Most lenders do have their own forms for third party authorization and if so I will obtain them and forward them to you to sign and we will then return that to your lender, lenders, and other lien holders. If they do not have their own form I will need you to write a letter to the lender giving the lender permission to talk with all the parties involved with the transaction about your loan. The letter should include the following:
- Your name as it appears on the loan.
- Last 4 digits of Social Security Number, EIN ,or TIN
- Loan Reference number
- Property Address
- My name & contact Information as your agent
- The date
Preliminary Net Sheet
This is an estimated closing statement that shows the sales price you expect to receive and all the costs of the sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Our closing agent will prepare this for us. If the bottom line shows cash to the seller, you will probably not need a short sale and we will proceed with a Traditional or “Equity Sale”.
This statement describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or have experienced other hardships, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior. They also take into consideration if this was an investment property and there have not been tenants in the property for an extended amount of time…this to an investor is a hardship.
Proof of Income and Assets
It is best to be truthful and honest about your financial situation and disclose all assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurances that the debtor cannot pay back any of the debt that is being forgiven. We will work together to view all of your expenses versus income including any profit and loss reports.
Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might request you to account for each and every deposit so it can determine which deposits will continue, such as deposits from employment versus one time "gifts" or "financial assistance". Even if there are “entertainment” items on your bank statements…again we can work together to account for and explain them.
Comparative Market Analysis
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). I will prepare a CMA for you, which will show prices of similar homes:
- Active on the market.
- Pending sales.
- Solds within the past six months.
Purchase Agreement & Listing Agreement
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of our listing agreement. Be prepared for the lender to refuse to pay for certain items such as home warranties, termite inspections, extraordinary expenses, or excessive HOA fees or fines. Once we have an idea of the lenders terms and requirements, we will then negotiate with the buyers. Whatever the situation is, we will all work together to get your Short Sale completed.
Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, we request the lender not report negative information to the credit reporting agencies, but understand that the lender is under no obligation to accommodate this request. But we will always try! We will also request that the deficiency, or the remaining amount of your loan, be forgiven. This is the most important part of the end result…I have a proven track record of accomplishing this.
Let’s work together to get you out of your current financial situation!
Contact me today for all your Short Sale needs...
Will Woodward II