The easiest way to understand the Short Sale process is to think about qualifying for a mortgage. When you apply for a mortgage, the lender reviews your recent bank statements, pay stubs, tax returns, etc. to determine your ability to repay the mortgage.
When you apply for a Short Sale, it's like undoing a mortgage. The lender will want to see the same documentation, along with a hardship letter, to determine your inability to repay the mortgage. If you can do this successfully, the lender will likely approve a Short Sale.
Below is a list of documents that comprise a complete Short Sale package:
• Bank Statements for prior two months
• Pay Stubs for prior 30 days
• IRS Tax Returns for prior two years
• Hardship Letter
• Authorization to Release Information
• Residential Real Estate Listing Agreement
• Executed Purchase Contract
• Lender Pre-approval Letter for Buyer or Proof of Funds for cash offers
• Preliminary Settlement Statement
Some lenders may require other documents such as an Arms-Length Affidavit and a Short Sale Contract Addendum which they will provide.
If the package arrives for lender review incomplete, oftentimes the lender will just move the file aside and pick up the next one on the stack. If the real estate agent isn't diligent about following up with the lender, your file could just sit on the lender's desk indefinitely with no action being taken. In the mean time, you're moving ever closer to foreclosure.
The important thing is working with a REALTOR® who understands the process, knows the proper documents to gather, knows how to submit a complete package, and regularly follows up with the lender.
Based on The Field Guide to Short Sales. Copyright © 2010 by Tom Branch & Gina Branch.
Tom Branch and Gina Branch, The Branch Team with RE/MAX Dallas Suburbs, service the greater North Dallas suburbs including Dallas, Plano, Allen, McKinney, Frisco, Lewisville, and Carrollton. While Gina concentrates on traditional listings and buyer/tenant representation, Tom specializes in assisting distressed homeowners to avoid foreclosure. Tom and Gina have published two books (Achieving Rock Star Status and The Field Guide to Short Sales) and are available for speaking engagements in the greater Dallas - Fort Worth Metroplex. Subscribe to The Branch Team Blog.
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Important Notice: The Branch Team with RE/MAX Dallas Suburbs is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
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Tom, thank you for sharing this short sale information with us. Very informative. Cheers!
Tom, I like how you say a short sale is "undoing a mortgage". I have never thought of it that way before but you are exactly right.
In my short sales I have had to provide a signed 4506-T in addition to the IRS tax returns. Great post!