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Foreclosure Attorney Michael Stites

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The Step by Step Short Sale Process

Learn the steps when trying to sell your home in a short sale. It’s a complex transaction that requires the scrutiny and approval of multiple parties within the bank.

Below is an overview of the short sale process, Instructions for how to start a short sale, and what the bank does when they receive the short sale offer.

A short sale is when the bank agrees to let the borrower’s property be sold for less than what the borrower still owes them.

Example: If a borrower owes $200,000 on their home but the home is only valued at $170,000. The short sale will have to be regulated by the lender since they have a lien on the property and the debt will not be paid in full.

Often times the property will be sold below the current market value due to the long and drawn out short sale process. With a short sale, the seller’s lender is the determining factor on whether or not an offer will be accepted. A short sale is kind of like the game Tetris. If everything falls into place the short sale can go through, but if one object does not fit correctly the whole process begins again. Incorrect or missing paperwork is one of the most common reasons for a short sale to fail.

Created by Attorney Michael Stites & contributing editor Jared Speck

Attorney Home > Foreclosure Research > Getting Out of Your Home: Short Sales & Deed in Lieu

1) Find Lender’s Loss Mitigation Department

Find the contact information for your lender's loss mitigation department and contact them. Sometimes the bank will have the information on their website with further details of what they require for a short sale.

2) Request Required Short Sale Paperwork

After explaining your situation to your bank's loss mitigation specialist you need to request the paperwork needed to get the short sale started. You should be able to do this even if your property is in foreclosure. They will usually email, fax, or send you the paperwork by mail.

3) Gather & Organize Required Documents

Put together the documents the bank needs to approve the short sale. The bank will want to know the type of financial situation you are in and your reasoning for wanting to sell the home in a short sale. A simple binder will help you organize all your recent financial information. Here is a list of basic documents that the bank will usually require:

Bank statements - Try to get statements dating back to the previous 3-6 months or longer if you can obtain them. It is better to have them and not need them, than to not have them and need them.

W2s - Tax information you receive each year from your employer stating how much they paid you

Hardship letter - A letter that explains how and why the borrower is unable to keep up with their payments.

Banks custom short sale package - Usually each bank will have a different looking short sale package.

Payroll stubs - They usually require pay stubs from the previous 3 months. If you have direct deposit you may be able to show this in your bank statements.

Tax returns - Preferably from the previous 2 years.

Third party authorization - If you are working with a realtor, HUD counselor, attorney, or any other person who will need to have access to your financial information pertaining to your loan, the bank will need to have proof. Usually they will provide you with a custom third party authorization form like this:

4) Find a Short Sale Real Estate Agent

Find a real estate agent in your area that specializes in short sales. They will help locate a buyer for the property. Not every agent will take on short sale cases because they can be frustrating. The bank will often require you to hire a real estate agent anyways. Most of the time banks will pay for the real estate agents commission of the sale.

4a) Hire a Foreclosure Defense Attorney*

If you are in foreclosure hire a foreclosure defense attorney to defend your case. Contact an attorney soon as you are served. They can prevent the bank from foreclosing on your home while you work to get the short sale approved.

* Only beneficial if your property is in foreclosure.

5) Double Check Your Short Sale Paperwork

Double check your short sale paperwork. Make sure everything is organized by date and easy to read. It is usually best to give each document a separate folder. Remember the bank has thousands of short sale offers to sift through so the less amount of time they have to spend sifting through your documents the faster you will get an answer. If you are unsure about anything, contact your lender before submitting your paperwork. You want all the paperwork to be correct first time.

6) Submit Your Short Sale Paperwork

Submit your paperwork to the bank along with the completed short sale offer. Be proactive after submitting your paperwork. Don’t just wait around. You will want to contact the lender once a week to see what is going on and if there is anything that they still need from you.

It’s also a good idea to have a back up offer because there is a high likely hood that they will reject the buyer’s first offer. People who are in the market for a home are usually eager to buy and move in. Because the short sale process is so lengthy buyers will often give up and move on.

10) The Negotiator Chooses to Accept or Reject the Offer

The negotiator will usually want a final update on the borrower's finances before recommending the offer be accepted or rejected. If the new home buyer and the bank agree on the price, the short sale is submitted for review by the bank's board of investors.

7) Loss Mitigation Department Confirms Paperwork

Bank's loss mitigation department confirms all paperwork required is there and determine short sale eligibility. If it looks like the borrower financially stable the proposal will be rejected.

What the Bank does when they Receive your Short Sale Offer

8) Bank Assigns Negotiator, Orders BPO

The bank has a negotiator assigned to the property. They order a Broker Price Opinion (BPO) to find out what the home is currently worth. This information is used to create a acceptable sale price range.

The BPO will be a:

Drive by BPO - A BPO licensed real estate broker will drive by the property and generally not exit their vehicle. They provide the bank information about the location, type of neighborhood, exterior condition of the home, age of the property, estimated square footage and number of rooms, the size of the lot, and 3 similarly sold comparisons.

Internal BPO - Requires everything a drive by BPO has except the information is more in depth and confirmed. The Broker will actually enter the home for inspection and take pictures.

9) A Property Appraiser Inspects the Home

If the short sale offer is within the acceptable sale price range provided by the BPO, the bank will send a property appraiser to inspect the home.

11) Short Sale is Submitted to Bank’s Board of Investors

If the short sale is approved by the board of investors it will be formally accepted in writing. The seller will receive paperwork with the terms and conditions of the sale. It should lay out what is to happen with the deficiency (the leftover debt the seller owes the bank) and if you will be liable for it or not. If the bank decides to write off the debt they will issue you a 1099 form that you will have to submit to the IRS at the end of the year. The IRS sees forgiven debt as profit and will tax you on it.

Short Sale Arms Length Agreements:

You the seller, are not allowed to receive any money from the sale of the property. The bank will also require you to sign a "arms length" agreement, which says the you have no affiliation with any party that would financially benefit from the sale. This includes, the buyer and real estate agent. You would not be able to sell the home to a friend or relative.

Tip: Many banks have been turning to electronic systems like equator to help them with short sale paperwork. You may have to scan and upload your documents to a computer and upload them to their system online.

Tip: Everything should point to an impossible situation of you being able to continue paying for the house.

Tips for a faster short sale:

Foreclosure: A Quick Outline

We break down foreclosure procedures into simple to understand terms. Begin here to learn basic steps in foreclosure and what you might be able to do to stop it.

Can I Defend Against a Foreclosure Without a Lawyer?

Find out why the average homeowner generally does not have the resources available to defend against foreclosure without an attorney.

How do I Avoid a Deficiency Judgment when I do a Short Sale?

Getting the bank to ensure that you will be forgiven of any leftover debt can take some serious convincing. This article contains an outline of the terms and agreements you will want the bank to sign and agree to.

How to Get the Bank to Accept Your Short Sale Offer

Learn how to force the bank to accept your short sale offer. Does the Bank have any incentive for accepting your short sale offer? Your short sale offer must be in the Bank's best interest before the Bank will even consider your proposal.

Related Topics:

The Step by Step Short Sale Process

Quick Short Sale Overview

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How to Get the Stubborn Bank to Accept Your Short Sale Offer avoid a deficiency judgment after your short sale Deed in Lieu of Foreclosure VS Short Sale do you need an attorney to negotiate your short sale

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