How Do Short Sales Work?

When a borrower realizes that he/she cannot continue making payments on a home or homesite because of certain factors (loss of income, relocation, mortgage adjustment, etc.), they must take action/decide on a strategy. Walking away should never be a strategy. They should do the following:

1. Call a licensed Realtor and ask about their experiences with short sales and foreclosures. They should also inquire as to the Realtor’s education and designations in distressed properties. The seller must be as transparent as possible;otherwise, the short sale will be off to a bad beginning.

2. Documentation is compiled and organized by the sellers/borrowers including: Hardship Letter, 2-years tax returns, two months bank statements, 2 months credit card statements, complete financial overview worksheets, two months paystubs, etc.

3. Realtor re-organizes seller/borrower documentation into a “file” that can be easily accessed and reviewed by the bank processor and negotiator.

4. Property is listed on MLS at a price determined by market conditions (with a set schedule, the price is reduced until a short sale offer is made on the property.

5. Documents are faxed to the lender. The lender begins a review of the file and calls the Realtor with questions or requests additional information.

6. During this “examination/review” phase, the Realtor and seller hopes an offer for the short sale property is received from a qualified and approved buyer. If so, the short sale file is moved forward for acceptance or rejection. This process can move smoothly or can cause delays, depending on the lender and the negotiator. An attorney will prepare a preliminary HUD to show bottom line numbers to the lender and to be certain the buyers are receiving clear title.

7. If a short sale offer is accepted, the contract goes to closing. The seller/borrower must then negotiate with the lender re a deficiency judgment.