The Short Sale Process

Many clients elect to sale their real estate through short sale as an alternative to having a foreclosure on their credit. This office recommends that anyone selling California real estate should seek the advice of a licensed realtor with short sale experience. Our law firm works in connection with real estate agents, not in lieu of an agent, to make sure that you have the proper legal advice to make an informed decision to sell, and have the power of an agent to get the sale closed.

A good licensed realtor will be able to explain the short sale process and assist you in getting the short sale approved. In the event that you do not know a short sale agent, you are welcome to contact our office and we would be happy to connect you to an agent in our referral base. However, if you are not currently working with an experienced real estate agent, the following information will help to explain the basic steps of the short sale process.

Step 1: Contacting the Lender

You may need to make a half dozen phone calls before you find the person responsible for handling short sales. Once you have the short sale department, request that they send you a list of the information that they need to make a determination of your short sale eligibility. If you are working with an agent, you agent will likely help you obtain this information and may make this call on your behalf.

Step 2: Submit a Letter of Authorization

Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
• Property Address
• Loan Reference Number
• Your Name
• The Date
• Your Agent’s Name & Contact Information

Step 3: Complete the Short Sale Application and Return to the Lender

The application is the information that you provide to the lender so that the lender can determine whether they will approve you for a short sale. Eligibility for short sale is based on your income, property value, and hardship needs. The following is the common documentation that you or your agent will have to provide the lender to determine your short sale eligibility.

1) Preliminary Net Sheet

This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your agent should be able to prepare this for you if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.

2) Hardship Letter

This statement letter is where you explain how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior. Keep the letter simple and concise. Lenders receive hundreds on these letters each day and will not take the time to read pages and pages of information. Your real estate agent may have a copy of an example hardship letter for your use. This office also can help you create an exceptional hardship letter if needed.

3) Proof of Income and Assets

It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. You will be required to submit recent paystubs and tax returns so the lender can verify your income.

4) Copies of Bank Statements

If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it’s probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.

5) Comparative Market Analysis

Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:

Step 4: List the Property and Find a Buyer

You will need to actively market the property to the public so that the lender can be certain any offers you receive to purchase the home are the best offers available given the current market trends. When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.

Step 5: Lender Approval

If all has gone according to plan, the lender will approve your short sale. You will close escrow and officially transfer the property to the new owner just as though you were part of a traditional real estate transaction.