While the process varies by program, here is an overview of the short sale process from start to finish.
1. Enlist the Help of a Professional
Unless you have a mortgage, legal, or loss mitigation background, you may not have a lot of success attempting a mortgage modification or short sale without the help of a professional. You should be wary of anyone who charges up-front for services as that is not a guarantee of success. The good news is that help is available for free.
We do not charge up-front fees for assistance with a short sale. We do, however, request that homeowners acquire a title search to uncover any liens that may have attached to the property. The cost of a title search from an attorney is around $150.
2. Document Collection
The following items are required to complete a short sale:
- 2 Most Recent Pay Check Stubs (FHA requires 3 pay check stubs)
- 2 Most Recent Bank Statements for All Accounts (FHA requires 3 bank statements)
- Signed Hardship Letter
- Financial Statement
- 2 Years Tax Returns
- 2 Years W-2′s
- IRS Form 4506-T
- Utility Bill
- Signed Dodd-Frank Disclosure (for HAFA files only)
Any documentation that you have to substantiate your hardship may be required as well.
Self employed borrowers will substitute the W-2 for a 1099 and the Pay Check stubs with a 6-month Profit and Loss statement.
3. HAFA Approval / Decline
All conventional loans are now being submitted for entry to the Treasury Department’s HAFA short sale program. If you are eligible for the HAFA program, the servicer will order a valuation on your property and submit the file for investor approval of the short sale. If approved, a Short Sale Agreement will be issued to you with the acceptable terms to list the home. Your Realtor will need to list the home for sale for at least 120 days at the price they specify in the agreement.
If you are not HAFA eligible (most are not), the file is eligible for a traditional short sale.
4. Market the Home For Sale
You will want to do your best to market your home for sale to potential buyers. Maintain the lawn, utilities, and keep the home as clean as possible. The home should be listed for Fair Market Value (a term lenders use) to mean the absolute highest price that is available for the market. Most lenders ignore other distressed sales (bank owned foreclosures and other short sales) as non-Fair Market and will reject an offer that is too low.
5. Accept a Contract
Your mortgage company is a third-party beneficiary of the contract only. They do not sign contracts and having them choose which offer to accept (if you present them with multiple offers) does not absolve you from liability from a potential judgment or promissory note. Negotiate the best offer you have, accept it, and that is paired with a mock HUD-1 settlement statement plus updated financials to the negotiator assigned on the file.
6. Lienholder Acceptance / Rejection / Counter Offer
Once the contract and hardship package are sent to the negotiator, expect the process for acceptance, rejection, or counter offer to come anywhere within 10 days to 90 days. If there are multiple lienholders, both should receive packages at the same time to speed up processing time. The negotiator on the file will order a valuation on the property to know if they did receive a fair-market offer on their property. Then, they must obtain approval of the file from the investor behind your mortgage and the mortgage insurance company, if any.
If the contract is too low, the negotiator will communicate the terms of a higher offer.
7. Lienholder Approval!
Once the short sale is approved, the contract that you have between yourself and the Buyer of your home can proceed. Typically, buyers complete inspections and appraisal and attempt to close within 30 days after receiving approval by the lender. Because step six can take so long, it is important that your buyer is fully qualified and remains in the contract. Otherwise, you might have to start over.
The closing is just like any other real estate closing. The lender will provide a copy of an approval letter that will specify the minimum amount they must receive on closing day for acceptance of the short sale. Any amount less will cause rejection of the sale.