The trauma of facing the loss of one's home is paralyzing. A homeowner who has a situation where he no longer can make payments on a mortgage due to lost income, job transfer, divorce or any number of reasons needs to face reality.
The change in life's circumstances might feel like one is walking down a dark tunnel, fumbling for light or something to hold onto. Facing reality means acting on the situation. Moving forward will be painful, but not nearly as painful as not moving at all.
The home needs to be sold. The mortgage exceeds the value of the home, so the bank will be asked to participate in a Short Sale. The process of applying to the bank for a short sale is much like the process of getting the loan, only in reverse. Financial statements must be prepared. A hardship must be disclosed to the bank in the form of a hardship letter. A market value must be established and a net sheet prepared. Contact must be made with the bank's loss mitigation department to determine what their requirements are. In general there is work to be done.
Before a short sale can be accepted there must be a purchaser for the home. The place to start is to hire a broker who is familiar with the process and can orchestrate the short sale transaction with the bank while marketing the property to find a buyer. Yes, it's a balancing act not meant for amateurs.
What Does a Real Estate Broker Do to Assist With Your Short Sale?
First I will state that is it not a requirement for a homeowner to hire a real estate broker to assist with a short sale. A homeowner who is willing and knowledgeable can certainly do all these steps by themselves if they want too. Most homeowners do not have the experience nor the understanding of what it takes to property prepare all the documents, establish a bonafide value, find a buyer (who cannot be related) and negotiate with the bank(s).
A short sale specialist normally is a broker who has significant real estate experience, not in just short sales but broad based credentials that cover the many facets of the real estate business. One needs to understand the nuances of lending, how to get to the right person at the financial institute, what to say when you reach them and most importantly how to build the case of the homeowner.
Frequently agents attend extra classes to learn how to do short sales because it's not something they teach in real estate school. I've attended a few of these classes and found them to be rather basic. The best place to learn how to do anything is by doing it. There's no teacher like experience, so when hiring an agent be sure to inquire as to the depth of experience. Just because one has a certificate saying they are an "expert" doesn't make them one.
When interviewing a real estate broker, ask questions, listen for stories of success and failure. Trust your judgment and go with the person who you feel can best represent you and state your case.
Preparing A Short Sale Package
The contents of a short sale package are fairly universal. If you start preparing now, you will be that much more ahead of the process. Here's what you will need:
- A well written Hardship Letter stating your situation and why you need assistance with a short sale. There are many examples of hardship letters on the internet. Try Googling the term and review these examples. Here is a good example of how to write your own Short Sale Hardship letter.
- Two years of income tax returns
- Two months bank statements
- Two months of pay stubs
- Credit report (get one for free )
- IRS Form 4506
- Financial Statement (a general one might be acceptable unless the bank requires one written on their own form. A list of what to include follows this section)
- Release Authorization ~ this allows the bank to discuss the short sale with your broker
- Supporting Hardship data - liens on property, medical bills, etc.
- Repair Estimate for the property ~ list of repairs needed to the property in order to make it sell. Itemized estimate of costs
- CMA - Comparable Market Analysis including recent sales comps for homes like yours in the area. Most recent sales have more weight.
- Listing Agreement - you will need a buyer for the property
- Net Sheet. This compilation of expenses will allow the bank to see how much they will need to participate in the short sale.
Short Sale Financial Worksheet ~ What to include:
- Auto loans
- Alimony / Child support
- All credit card bills
- Electric Bills
- Gas bills
- Water/sewer bills
- Heating fuel
- Home telephone bills
- Cell phone bills
- Cable Bills
- Auto insurance
- Health insurance
- Life insurance
- Doctor bills
- Dentist bills
- Pharmaceutical drug bills
- Student Loans/tuition
- Other loans
- Any recurring bills
Now you are on your way to finding a fresh start. This is a good move, but remember it's only the beginning. If you truly want to effect the outcome you have to continue your diligence and bring your best game to the the table. Tomorrow I'll discuss how your attitude and actions impact your short sale success.