The Short Sale Package
Every lender is different, and each short sale package can be different as well. Some of the items must be gathered and prepared by the seller and others by the agent. The agent will submit the completed package to the lender when an offer is accepted by the seller. Here are the most common elements:
- Proposal Letter:
- This is prepared by the agent and gives a concise overview of the homeowner’s situation, stating what they owe on the property and what the property is worth. It also outlines how much the offer is for and identifies the amount of any repairs that are needed.
- Hardship Letter:
- The hardship letter must be written by the seller describing the seller’s circumstances and should only be ONE PAGE in length.
- The hardship letter should communicate three key points:
- "I'm sorry"
- "Here are my circumstances (such as job loss, medical issues, divorce, heath issues, damage to the property not covered by insurance, etc.)."
- "I have exhausted all of my options and the only next step is letting the property go to foreclosure."
- The seller should be as persuasive as possible in describing why they are no longer in a position to continue with his or her financial obligations to the lender. This letter can make or break a short sale. The reasons given should be compelling and it is vital that the seller be honest and frank in their disclosures to the lender and should include corroborating material if available. If the seller was fired, include the termination letter. If the seller has medical bills, summarize them. If the seller is ill or disabled, explain how that has made it impossible to keep the property. If there are tax problems, describe and document them.
- Seller's Financial Information:
- This can be constructed very easily as a list of assets and liabilities. Assets could include: real estate, stocks, bonds, mutual funds, bank accounts, personal property, and retirement accounts. Liabilities could include: real estate loans, personal loans, credit card debt, IRS liens, judgments, lawsuits.
- Lenders will also want the amount of all the monthly expenses in addition to the assets and liabilities. These would include: credit card bills, utility bills, car payments, insurance costs, food and clothing, medical bills, child support, tuition expenses.
- Supporting Financial Information:
- These items are typically the same things a borrower was required to provide when applying for a loan. The lender will determine how far back the seller needs to go in supplying this information, but 2-3 months is the most common.
- Pay Stubs. Pay stubs allow the lender to see if the monthly take-home pay would cover the loan payments plus all the other monthly expenses. If the owner is unemployed, there will be no pay stubs to include.
- W-2s and/or tax returns for the previous 2 years. The lender is trying to get a complete picture of the owner’s financial situation. Is the income going up? Is the income going down? Will the borrower be able to make payments if the lender agrees to a repayment program?
- Profit and Loss statement if the seller is self-employed
- Bank statements for the past 2-3 months. The lender wants to be sure the borrower is truly unable to make the payments and these statements support that.
- Credit Report. The bank will order a credit report, but if you have a recent one available attaching it is a benefit.
- ANY EXPLANATION OF YOUR FINANCIAL STATUS THAT DIFFERS FROM WHAT YOU PUT ON THE ORIGINAL LOAN APPLICATION TO GET THE MORTGAGE COULD BECOME AN ISSUE. IF THE LENDER SEES AN UNEXPLAINED DIFFERENCE BETWEEN WHAT WAS STATED ON THE APPLICATION TO GET THE LOAN AND WHAT IS NOW BEING USED TO GET OUT OF THE LOAN THIS COULD RAISE THE QUESTION OF LOAN FRAUD. IF YOU HAVE A CONCERN OR QUESTION YOU SHOULD CONSULT WITH YOUR ATTORNEY.
- Supporting Hardship Information
- Repair Estimate for the property, if repairs are needed
- CMA with supporting sales history
- Marketing history
- Purchase contract signed by both the Buyer and Seller
- Written proof of the buyer’s ability to purchase the property
- Pre-approval letter or proof of funds
- Preliminary Settlement Statement