A short sale is where a lender agrees to sell a property at fair market value even if it has an outstanding mortgage. The lender will typically forgive any outstanding loan balance. This is not always possible.

Short sales are often rejected. Short sales can fail for many reasons, particularly if there are multiple lien against the property. All lien holders must agree that the property will be sold under the same terms. This can be a very beneficial process for both sellers and buyers, even though it isn’t easy.

Request a Property Valuation Analysis

A lender will not approve a short sale if there is sufficient equity in the property to allow it to sell. A homeowner must have her mortgage in arrears. This means that she owes more on her mortgage than the fair market price of the property.

It is important to establish the home’s value before you move forward.

Lenders will be more inclined to agree on a price if the property’s worth is comparable to the outstanding balance. Although it is possible to work with less than your outstanding balance, it is more difficult to get a price that you are willing to pay.

The lender will need proof of value. A broker can provide a price opinion, while a real estate agent will conduct a comparative market analysis (CPA). A professional appraisal can prove very effective. Lenders might also request a professional appraisal.

Request a Hardship letter

A lender will not agree to short-sales if it does not have a value. It must understand why the homeowner is selling. It must understand why the homeowner is selling.

The seller must create a hardship email detailing the reasons why he cannot make his mortgage payments. This letter should be completed in the second step. It should be persuasive. It is essential to be persuasive.

It should be convincing and complete. The seller must immediately be able to communicate with the lender that he/she has two options: foreclose, foreclose, or file bankruptcy. It is unlikely that the seller can overcome the hardship in the immediate future. This could be due to unemployment, divorce, or death of a spouse.

Sellers should have more ammunition to convince lenders that they are on his side. This will increase your chances of receiving a positive response. You should include details about his assets and income, as well any debts. To prevent him from obtaining better financial health, he should show that he’s not eligible for another loan. He doesn’t own any assets that could be sold to raise funds.

While it is fine to show emotion, keep your letter to one-page. Include documentation to back up your statements if possible.

Contact the lender to apply for a short sale.

This isn’t as easy as it sounds. Lenders won’t talk to potential buyers and investors unless the homeowner/borrower has given permission. Before she can contact any lender, she must obtain written approval from all parties. She can then submit the consents along with the short-term sale package.

These consents will allow the lender’s loss mitigation group to meet all parties and discuss possible options. If the short sale succeeds, they can be used to establish the terms of the lender. A meeting with the loss mitigation team may be held for commercial properties to discuss these details. This is not possible for residential properties.

When you submit an application to begin the process, don’t expect to receive warm greetings. Short sales are not something that lenders love to hear. You may need to make multiple calls to them in order to get the application.

Prepare the sales contract

Next, you must make a genuine deal. This is legally binding agreement between seller and buyer. The lender will need to see something concrete in order to approve or deny the purchase.

The agreement must clearly state that it is contingent on lender approval. Include a copy of the listing agreement showing the commission due to the real estate agent on sale. You might also want to include evidence of buyer’s capability, such as a preapproval letter from a lender or cash deposits into an account.

Often, a required affidavit of arms length is requested. This is a declaration that there has been no previous relationship between the buyer and seller. Accordingly, the proposed sale price is fair market value. The homeowner isn’t selling the property to make a quick buck.

Assemble the Short Sale Package Together

The more comprehensive your short sale package is, the better. Take all the information you have gathered and photocopy it. Then, submit it to your lender.

The hardship letter should be supported by your short sale presentation. Prepare a comprehensive and detailed set of financial documents to support your claim that short sales are a good option.

You can use bank statements, income proofs, evidence of assets or their value, statements from credit cards, and loans to prove your income. Bank statements can be used to prove death or diagnosis. You should include all information that is possible to back up the information in your letter.

A CMA, BPO, or appraisal should prove that the home will not sell for more than its current short-sale price.

The Loss Mitigator reviews your Short Sale Package

The lender’s loss mitigation representative will review your financial statements and collect additional information if you have prepared a complete short sale package. He will assess the situation to determine if a short sale is possible.

He will most likely obtain a title report to ensure that there are not any other liens on the property. He might want to meet with the broker who provided the BPO. This is another reason why consent-to-talk letters are so important.

Don’t expect the broker or mitigator to rush you through this process. The bank doesn’t want to rush this sale. The mitigator doesn’t want to finish the review as quickly as possible.

In most cases, the short-sales agents must be available to answer any questions or phone calls.

Negotiate the short sale to close the deal

One of the following things will eventually occur after the loss mitigation review. Either the lender accepts the offer and sends a letter outlining terms, or it rejects the proposal. If certain conditions are met, it might reject the proposal.

You may not get a response from the lender. You can continue to work until you receive a rejection or a definitive reply.

If the sale proceeds, the lender will issue an initial settlement statement describing the closing date, closing cost and, if applicable how much each lien holder will get from the sale.

If there aren’t lien holders, the lender will take all proceeds at closing. This deal does not result in the seller receiving any money. The balance of the loan is still due to the seller for the short-sale of the property.

Sellers should get a waiver from their lender in order to obtain a deficiency judgment against them. This will release her from any responsibility for payment of the mortgage balance following the sale.

What’s in it For the Lender?

Lenders can be overwhelmed by foreclosure properties. They are more comfortable negotiating short-term sales. Lenders can avoid another foreclosure property by selling the home quickly. This saves time and money on the upkeep of the home until it is sold.

A short sale can decrease the likelihood that the homeowner/borrower will sell the property before he leaves.