Short Sales Tips for Sellers

If you are thinking of selling your home and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale.

• A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency.
• A short sale is different from a foreclosure.  A foreclosure is when your lender takes title of your home through a lengthy legal process and then sells it.
• A short sale will impact your credit score less than a foreclosure or bankruptcy.

If you are thinking of selling your home and feel you may qualify for a short sale, follow the steps below before making any decisions on your own.

Consider loan modification first

If you are thinking of selling your home because of financial difficulties, first contact your lender to see if it has any programs to help you stay in your home.

Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary.

When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:

• Your property is worth less than the total mortgage you owe on it.
• You have a financial hardship, such as a job loss or major medical bills.
• You have contacted your lender and it is willing to entertain a short sale.

Hire a qualified team

The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales.

• Short sales have increased only in the last few years, so you may find it difficult finding practitioners who have closed a lot of short sales.
• You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won't try to pressure you to do something that isn't in your best interest.

A qualified real estate professional can:

• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold.
• Put special language in the MLS that indicates your home is a short sale and that lender approval is needed.
• Ease the process of working with your lender or lenders.
• Negotiate the contract with the home buyers.
• Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval.

Begin gathering documentation before any offers come:

Your lender or Short Sale Specialist will give you a list of documents required to consider a short sale.

The short-sale “package” that accompanies any offer typically must include:

• A hardship letter detailing your financial situation   and why you need the short sale.
• A copy of the purchase contract and listing agreement.
• Proof of your income and assets.
• Copies of your federal income tax returns for the past two years.
• Prepare buyers for a lengthy waiting period

Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take anywhere from several weeks to months.

Some experts say:

• With only one mortgage, the review can take about two months.
• With two mortgages with the same lender, the review can take about three months.
• With two or more mortgages with different lenders, it can take four months or longer.
• When the bank does finally respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one.
• Don't expect a short sale to solve your financial problems

Even if your lender does approve the short sale, it may not be the end of all your financial concerns.

Here are some things to keep in mind:

• You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale.
• Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount.
• Having a portion of your debt forgiven may have an adverse effect on your credit score.