Click each step to see each in detail…[toggler theme=”boxed-white” title=”Step 1: Obtain Professional Tax and Legal Advice”]
Through a short sale, you’ll be working primarily with your real estate agent, but there are 2 additional professionals that you must consult with prior to moving forward.
- You MUST consult with an experienced real estate attorney who can advise you on the potential financial results and who will review your lender’s settlement agreement before you commit to closing the short sale. The cost for this is usually less than a home inspection and worth every penny. It’s also a requirement for us to work together.
- You need reliable tax advice. Debt forgiveness can be considered taxable income by the IRS, but only a qualified tax professional can advise you on this.
- Ask me as many questions as you can about short sales. I can answer most of them as long as they aren’t legal or tax related questions.
While each short sale is unique, they are all similar in theory. As a result, I have a very specific process that I follow for each short sale that involves your complete cooperation.
Through the process, you’ll be asked to provide various documentation that the bank will require. A short sale approval involves a “backwards qualification” process. The bank is basically disqualifying you from continuing with your loan based upon your circumstances.
You will also be contacted by your lender and may receive mail that is confusing. Remember that the bank’s processes are very automated and they have horrible interdepartmental communication.
Short sales take time, but they are often dependent upon quick responses to requests for documentation. When we move forward together, I will expect that information to be provided expediently, and kept up to date, as the most common hang-up for lenders is incomplete or expired documentation.
You must trust the pricing schedule. Part of the process is setting the initial asking price with a pre-determined price reduction schedule.[/toggler] [toggler theme=”boxed-white” title=”Step 3: Assemble Documentation” ]
In addition to this generic checklist, many lenders will have their own additional forms and document requirements. Some banks want 3 months worth of one document while the other only wants 2 months, etc. This list is a list that every lender will require as a part of their process.
- Most recent mortgage statement (this is what we use to create the 3rd party authorization)
- 3rd Party Authorization – This document authorizes us to speak with your lender on your behalf in order to negotiate the short sale.
- Borrower Financial Worksheet – A detailed monthly cash-flow and asset/liability worksheet that represents your entire financial situation.
- Hardship Letter – A short and sweet “just the facts” statement (no more than 200 words), signed and dated explaining your financial hardship. This can include one or more of many different qualifiers, including reduced income, death in the family, relocation, health issues, etc.
- Two most recent years complete IRS tax returns or proof that you’ve filed an extension or a signed and dated letter explaining that you have not yet filed for a particular year.
- IRS form 4506-T completed and signed.
- Proof of Income – 2 most recent pay stubs, any income statements, and/or P&L statement for the most recent 3 months.
- Bank Statements – 2 most recent months of your primary checking account.
- Lease Agreement – if the property you are selling has a tenant, we need a copy of the lease.
Once you have all of the documentation gathered, we will meet with you to collect it, finalize the listing agreement, and begin the marketing process. Upon listing the house for sale, we will provide instructions specific to the short sale contract to all prospective buyers through the Arizona MLS.
It is at this point that we will establish 3rd party authorization with your lender(s) and begin an open dialog regarding the sale of the home.
In the first 30 days, our goal is to investigate to gather as much information as possible while making sure all required documentation has been properly accounted for at the lender.
The lender’s first step in the negotiation process is hiring a 3rd party company to evaluate the property and run a comparable market analysis (BPO – Broker Price Opinion) to find the estimated opinion of value. This dollar amount is reported back to the lender and is used as a basis to begin negotiating.
During the first 30 days we will:
- Sniff out the BPO value
- Determine who the investor(s) are on the property
- Establish a relationship with the processor and negotiator at the bank (and supervisors if needed)
- Determine if there is any “pool” insurance on the property (hidden mortgage insurance)
- Identify, if necessary, mortgage insurance companies involved.
- Review the title report for any additional liens or potential roadblocks
There’s no specific time frame that we can give for this process. Each case is different. It’s possible that the bank will want more money. It’s possible that a mortgage insurance company may prevent the deal from closing without a cash contribution. The 2nd mortgage might clog the pipes of success. It’s also possible that we receive an approval without any hiccups. In any case, we fight for the value and negotiate between all of the lenders to come to an agreement that works for everyone.
When all of the lenders involved have issued approval letters (settlement agreements), those letters are reviewed by your attorney to determine if they will or will not be in your best interest.
As soon as you agree to the banks terms, we deliver notice of agreement to the buyer and begin a normal real estate transaction timeline.[/toggler] [toggler theme=”boxed-white” title=”Step 8: Normal Real Estate Closing Begins” ]
Timelines that would apply to a normal real estate sale begin when you notify the buyer that you’ve reached an agreement with your lender(s). The remaining 3 contingencies apply.
- Inspection Period