In 2009, short sales earned a reputation as being a slow, and often unsuccessful, process. After waiting months for lender approval only to have the offer turned down, the seller was still left with a home he could no longer afford, and the painful process of foreclosure or bankruptcy loomed. In 2010, this problematic process should become much smoother. Lenders are working on ways to streamline the short-sale process for both buyers and sellers.
As a homeowner, you may have first attempted a loan modification with your lender, in order to get above water. But at some point, either now or in 2010, you may find it necessary to sell your property if your financial situation has not improved, or if your property continues to decline in value.
Because the lender is likely to take a fair amount of time processing your short sale request, and because time is of the essence, you must ensure that your short sale request itself is as articulate, thorough and persuasive as possible. Here are the top 5 steps you can take to maximize your chances for success.
- Approach your lender as soon as you think you might need to request a short sale.
If you are struggling to make your mortgage payments, list your home with a reputable Realtor® as soon as possible. Make sure that your Realtor® is thoroughly trained in the short sale process, and that they can give you accurate, up to date information on your lender’s current short sale guidelines. If they advise you that your home is likely to sell for less than you owe on it, immediately contact your lender’s “workout” department to request a short sale package. If you can get your lender to indicate how much of your mortgage they are willing to forgive up front, you boost your chances of working with a buyer to create a transaction that is a bargain for them, but likely to be accepted by the bank, too.
- Authorize your Realtor®, in writing, to negotiate directly with the lender.
This is the moment when a well trained Realtor® will shine. Let them be your voice with the lender. As part of your listing agreement, you will likely sign some sort of a “short sale addendum”, which will outline the rights and duties of the agent, and give your Realtor the ability to negotiate on your behalf. The Realtor® should then clearly communicate all that transpires with the loan workout department, so you are aware of all negotiations. But make sure to stay on top of the communications between your Realtor® and your lender.
- Make sure each offer is presented in its best light.
Your Realtor® should work with the buyer’s agent to make sure that each offer presented to the lender includes a cover letter that explains the buyer’s qualifications to buy your home, how much down payment money they propose to put in, and anything else that might boost the lender’s interest in completing the sale. The buyer must be pre-approved for their new loan, not just pre-qualified, and a copy of their lender’s pre-approval must be included with the package. If the buyer is requesting any closing cost credits, make sure they are itemized, and be sure to tell the lender if the buyer is a first-time homebuyer; lenders are more likely to agree to concessions for first-time buyers than for investors.
- Take time to explain the details in your “Hardship Letter”
This is the moment when your voice is heard. Make sure you handwrite your hardship letter, and sign it as well. Feel free to use a conversational tone, but do present your financial situation in the harshest light. If you lost a job, had an illness, divorce, or death in the family, are on a fixed income or disability, are in a declining market, or have any other circumstances that affect your ability to pay off the mortgage, then let the lender know. Don’t assume that the lender is aware of all your local market conditions; your loan workout group may be located in another city, county, or state. Let them know that you are considering filing bankruptcy, and that their approval of the short sale would prevent you from doing that. Since a filing of bankruptcy stops the foreclosure process, the lender would much rather approve your short sale than have you file bankruptcy. (During the bankruptcy, the lender is precluded from foreclosing on your property. They must wait months for the bankruptcy to complete before they can proceed to foreclose.) Also explain any facts that might make it harder for the bank to resell your house; this will make the bank appreciate any offer from the buyer. The more complete and compelling your story, and the more personal you are, the more likely you will be to get the short sale approval.
- Make sure your short sale package is thorough on the first presentation.
Your Realtor® should provider you with a current list of items that your lender is looking for. At a minimum, the lender will want to see:
- Your hardship letter;
- A balance sheet listing your monthly income and expenses, or a profit and loss statement;
- Statements from your checking, savings and other asset accounts;
- A net sheet from your Realtor® listing all of the closing costs that must be paid for your short sale to close;
- A current Market Analysis (CMA) or a Broker Price Opinion (BPO)
- Supporting documentation, including two months’ worth of paycheck stubs and all of your household bills, including HOA dues;
- Your last two federal income tax returns.
- The offer to purchase your home, including the buyer’s preapproval letter, once it is received.
Make sure the package is complete the first time your Realtor® sends it. Don’t make your lender come back and ask you for any of the requested items. Remember that most bank staffers are sorely overworked, and a package that is incomplete will more than likely go to the bottom of the pile.
Be sure to consult with your accountant or tax attorney throughout the process, so you are aware of all the possible financial implications of your short sale. Above all else, remain patient and optimistic. You are working at rebuilding your financial future, and a successful short sale will be your first step on the road to recovery.