It is very important to know if a short sale is the best answer for your situation. A short sale becomes a viable option when you owe more than the property is currently worth. You may be thinking why would the lender allow a short sale and why would the seller want to do a short sale? Both answers to those questions depend on the market and economics.
If the homeowner has a mortgage and the pay off of the mortgage is $100,000, but in the present condition of the home and/or market; the home is only worth $87,900. The homeowner still owes $12,100, true enough; however, if the homeowner allows the home to go into foreclosure, then they stand to lose more. Why? One reason is it will take 7 to 10 years to recover credit wise and/or financially from the credit damage of a foreclosure.
Another reason to consider a short sale is the homeowner keeps his or her integrity and avoids the embarrassment of the public sale. The best reason of all to avoid the foreclosure is the smaller tax liability on the homeowner. With the latter statement being made the homeowner needs to consult a tax adviser about the tax liability if any from the short sale. And remember, that if you are insolvent file form 982 with the IRS.
If you feel that you qualify for a short sale contact the loss and mitigation department for your lender. Once you contact the lender’s loss and mitigation department ask for a short sale package. Most lenders have financial forms that the lender needs the homeowner to filled out.
A complete package consists of:
financial documents from the owner. The financial documents include: 1. W-2 or 1099
2. pay stubs
3. lender financial documents (This document is a written version of above information. It includes your income, name, address, phone number, etc)
4. authorization letter (allows the Realtor to speak to lender on your behalf)
5. hardship letter from seller/owner (this letter will explain why the owner got behind on the payment of the mortgage)
listing agreement with brokerage purchase agreement 1. purchase agreement must have proof of funds whether it is a pre-approval letter from a lender or proof of cash to purchase the property
HUD-1 The HUD-1 is a settlement statement that itemizes all the charges for both the buyer and the seller. This documents gives the lender an overview of funds needed to sell the property. Armed with the above information, the lender makes a decision on the offer that the buyer submitted. Remember, a short sale allows the owner to avoid foreclosure.