Five Steps To Short Sale Success

Homeowners facing foreclosure may feel there are no alternatives to their distressed situation. Even when it is clear the homeowner can no longer afford the home and needs to just walk away, there is an alternative that can avoid a foreclosure on a homeowner's credit record and may in some cases, put money in the distressed homeowner's pocket. A short sale may be the answer.

Getting approval from a lender involves a process of filling out certain documentation and submitting it to the bank or lender's loss mitigation department for consideration and approval of the short sale. It is the bank that has the final say over whether the short sale is approved rather than the homeowner who is selling the property.

Homeowners who have made the decision to seek a short sale should also seek to negotiate with the bank or lender for relocation funds to assist them with moving expenses. Under the federal goverment's Home Affordable Foreclosure Alternative (HAFA)a homeowner short saling a home may qualify for up to $3,000 in relocation assistance in addition to relief through the short sale process. A short sale often is the most advantageous for the mortgage lender as well as the homeowner.

If a short sale is the final decision the process generally follows:

1.GET THE BANK OR LENDER'S SHORT SALE PACKAGE.

This can be done by simply going to the lender's website and finding it's criteria for submitting a short sale package. Download the package and fill it out. If the homeowner will be represented by a real estate agent, this function and the rest of the steps in this article will generally be handled by the real estate agent. If the homeowner chooses representation by a real estate agent, the homeowner should ensure that the agent is experienced in handling short sales.

2.GATHER THE NECESSARY PAPERWORK TO SUBMIT TO THE LENDER FOR SHORT SALE CONSIDERATION.

The short sale package should contain at minimum an authorization to release information authorizing the real estate agent to represent and speak on behalf of the homeowner; a completed financial statement, copies of the homeowner's last two years tax returns; the most recent two months bank deposit statements and a hardship letter written by the homeowner that clearly and accurately explains the homeowners' hardship circumstances that justify an approval for a short sale.

Without hardship circumstances justifying a hardship it is unlikely the lender will be motivated to approve a short sale. The bank also generally requires the homeowner to submit an IRS form 4506T which permits the bank to obtain copies of past tax returns. These documents generally make up the short sale package. Some banks or lenders may require additional documents in which case they should simply be provided.

3.SUBMITTING THE SHORT SALE PACKAGE.

Presentation of the short sale package is an important step. Appearance and perception of the package is crucial. The package should be submitted with a cover letter requesting short sale consideration with a table of contents and tabs separating the various documents. This presents a professional appearance and is helpful to the negotiator assigned to review the package and to determine whether to recommend approval or declination of the short sale.

Remember you are dealing with a human being when negotiating the short sale. The short sale negotiator will respond favorably to courtesy, patience and quick response when any missing information is requested. Don't be surprised if the negotiator asks for information that you've submitted before. Unfortunately this happens often during the short sale process. Just be patience and provide the information. Make the negotiator's job as easy as possible.

Although not always required, it is also a good idea to wait until there is a bona fide offer from a qualified buyer before submitting the short sale package. The offer should also be accompanied with a HUD-1 statement also. A HUD-1 statement will show the bank what it can likely expect to receive as a final amount resulting in a short sale.

An experienced real estate agent will know what to do in submitting these documents. If the homeowner chooses to handle it personally, help should be sought directly from an escrow company or closing agent who will usually be glad to assist in preparation of the HUD-1 in return for the fees in closing or handling the escrow.

4.ESTABLISHING AND MAINTAINING RAPPORT WITH THE SHORT SALE NEGOTIATOR.

Once the short sale package is submitted to the bank's loss mitigation department a negotiator will be assigned. It is important to establish a good relationship with this person because the success or failure of the short sale rides on an approval recommendation from the negotiator.

Be courteous and professional at all times and provide additional documentation when requested so long as it is reasonable and it makes sense. Most negotiators are professional and courteous and will be helpful when they perceive the same from the homeowner's side.

5.CLOSING THE DEAL AND WALKING AWAY.

If all goes well the short sale will be approved. The homeowner will be able to walk away without a foreclosure on the record and to commence rebuilding a favorable financial record. If the home was the principle residence of the homeowner there will be no taxable consequence on the difference between the mortgage amount on the loan and the amount the home actually sold for.

The federal Mortgage Debt Relief Act provides that no taxes are due on short sale amounts for principle residents sold at a foreclosure or short sale and protects the selling homeowner for up to $1,000,000 if single and up to $2,000,000 for a couple for a home sold between the years 2007 and 2012.

Used in a carefully planned manner, a short sale is a very effective way to avoid a foreclosure and provide relief to a distress homeowner.