How Does A Short Sale Work?
In order to know what a short sale is you must understand what it is, so, what is a Short Sale?
A short sale occurs when a person owes more on the mortgage than what its worth, therefore with the permission from the bank, you are allowed to sell your home and give them the proceeds from selling the property even though it will fall short of the total debt owed.
This process will take longer than the traditional approach in selling a home due to the back and forth negotiations between the lender, the seller, and the buyer. After obtaining a buyer, negotiate on a price range that is acceptable to both the seller and the buyer and form a contract which should be reviewed by a real estate attorney for the protection of both parties. With this go to a bank and show proof that you have a willing buyer to ensure the bank of a successful short sale.
What the Bank Requires
In order to get the banks approval you will need to provide them with series of documents about your updated financial information proving your current situation and an in depth letter of why you are in your current situation (death, illness, loss of job, etc):
1.) Federal Tax Returns – Last 2 years (Generally only the front 2 pages)
2.) Pay stubs or equivalent documentation – last 2 pay periods
3.) Bank Statements – Last 2 months
4.) Mortgage Statement – This applies to any and all mortgages and or HELOC’s (Home Equity Lines of Credit), make sure it has a loan number on the statement.
5.) Hardship Letter – Letter of explanation to the bank as to why you got behind, why you cannot afford to make any further payments or catch up.
(examples of reasons would be: adjustable rate mortgage went up, illness, death in family, divorce, lost job, ect)
Also, in great detail in the letter, explain everything you know wrong with the house (roof leaks, plumbing problems, foundation, mold, carpet and paint, furnace, etc)
6.) Abstract for the property and any closing documents from when you purchased the home.
7.) Completed Fannie Mae Financial Statement
8.) Authorization to speak with your lender (We will provide this document)
Research the Property
If you are a buyer, make sure to observe the property to see if anything needs to be repaired. If it does, figure out how much the repairs would cost and if its worth getting a deal on. The more you understand the neighborhood and the pricing of it the easier it will be for you to make a decision whether to purchase the short sale or not. Make sure to have the homeowner make and sign a letter to send to the bank which allows the lender to discuss the short sale proceedings with you.
The Final Steps
Upon completion of contingencies the buyer applies for a loan and once approved it will be considered as a closing.