Some of you may be wondering how you can go about selling your home the “short-sale” route, but aren’t sure how it works. Well, here’s what I call a “Seller’s Guide to the Short Sale Process”…
First and foremost, let’s define “short-sale” as it relates to real estate today:
A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold
If you’re not sure whether you’ll be “short” if you sell the house, hire an appraiser or ask a Realtor to do a CMA for you and deduct the balance of your mortgage(s), any line of credit(s), other lien(s) and cost of sale from the estimated market value of your property. Once you’ve done that, you’ll have a good idea of whether you’re “short” (assuming the appraisal or CMA are accurate).
Let’s assume that you’re “short” and want to move forward with a short-sale. What are the next steps.
Well, fellow Virginia Realtors and bloggers Sarah Stelmok and Jeremy Hart beat me to the punch by about 24 hours with their posts on short-sales. So, with their permission, I’m going to cite their explanation about the process to save some time.
If you are a Seller considering a Short Sale in your property, you will need to gather the following information:
- All lien holders names and contact information
- All loan numbers
- A Third Party Authorization Form - this will allow the bank to discuss your short sale with your REALTOR. It needs to be agent and loan # specific and have an indefinite end date Some banks have their own form; others will accept any form you prepare. You need to get this to the bank as soon as you hire a REALTOR.
- Listing Agreement - this should include a CMA of the property to justify your list price
- 2008 and 2009 W-2s - or the tax forms that you filed if you do not get W-2s.
- A Profit/ Loss Worksheet for 2009
- Last 2 Month’s Bank Statements
- Proof of Disability or Unemployment or Job Transfer (if applicable)
- Hardship Letter - this explains why you want to short sale and why the bank should allow you to short sale
Once you have all of these items, the next steps are…
1. List the property for sale– Some banks want the property listed for the amount that is owed first, and they will be willing to drop to a more realistic price after a period of time. The listing agent will need to back up their list price with a good CMA! Remember, a BPO will be called out as soon as they receive a contract.
2. Receive and ratify a contract – needs to be ratified by the seller and buyer. Some banks want one contract at a time; others want to see them as they come in. Another reason to contact the bank ASAP.
3. Send Contract to Bank - get confirmation from the loss mitigation offer at the bank and preferably written proof of receipt
4. You will also need to send – all of the paperwork including the hardship letter you gathered/prepared prior to listing your property for sale (see earlier part of this post). The bank may ask for other items not listed here. They may also send you additional forms and paperwork for you and/or your agent to sign.
5. Be persistent, but patient - Make sure you ask how long it will take for a contract to work its way through the system. You want to hear it will take 30-45 days, but they may tell you that it will take just that long for them to even look at the file as is the case with CitiMortgage. You also want to ask about the likelihood the loan will be sold. They like to sell the loans right before they give you approval, and you’ll have to start the process all over if they do.
6. Stay as current as possible - Make sure you don’t get more than 2 months behind. Some banks will allow you to get up to 9 months behind, but they are harder to negotiate and keep off the auction block. If you don’t know what their policy is, ask.
These steps will need to be done for each bank that is involved and each bank has their own process. Some banks that are in 2nd position (2nd trust/mortgage) will only start processing their short-sale after they’ve received written short-sale approval from the 1st trust. This means that the overall short-sale approval process may take twice as long with two trusts/mortgages.
If you are considering pursuing the Short Sale route to sell your home, it is important that you consult an attorney that is familiar with the process. It is also important that you use a REALTOR who is trained in the short-sale process and has experience in Short Sales.
So I hope that this helps you out (thanks again Sarah and Jeremy). If you’re in a situation where you’re about to fall behind on your mortgage and/or are considering a Short Sale, contact me to chat about it and see what options you have.