Considering doing a short sale?

Find Out What to Do When the Home You Bought A Few Years Ago is Worth Less Than What you Can Sell it for:

Please note this page is a work in progress and is continuously being updated.

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Considering doing a short sale?

We at the McGlothlin Properties team are experienced at short sales. We’ve worked with several banks including Bank of America, Wells Fargo, One West Bank, Chase, Suntrust, HSBC, Citi Financial, and American Home Mortgage. We understand the short sale process and are prepared to walk you through the whole way. Call us today at 703.447.6800 to ask us about a short sale or read below some common questions concerning short sales:

What is a short sale?

A short sale is when you list and sell your house for less than what you owe on your house – that includes mortgages and home equity loans.

When and why should I do a short sale?

Short sales can be done at any time but most banks will only agree to allow a short sale when you have some financial burden that makes it almost impossible to pay your mortgage. You should also consider doing a short sale when a foreclosure is looming. When you start a short sale, it halts the foreclosure process. This means that the bank will not foreclose on your house.

Short sales are also an effective way to prevent a detrimental impact on your credit. Be aware that there IS negative effect on your credit (it’s estimated about 300 points) but the effect on your credit is less than having a foreclosure on your credit. Also, a short sale will allow you to obtain a government backed mortgage in around 24 months while a foreclosure will prevent you from obtaining that same loan for around 4 years.

How long does a short sale take?

It’s estimated that the process takes approximately 4 to 6 months. This includes listing the property, receiving a contract and ratifying it, sending the paperwork to the bank, and getting the banks approval. Working with the bank is where the bulk of the time is spent. Being prepared in advanced with the necessary paperwork is essential to make your short sale go through quickly and smoothly.

Why do banks agree to short sales when they can just foreclose?

Banks are in the business of selling loans, not owning homes. The more homes they own the more they have to pay in miscellaneous costs like utilities, HOA/condo fees, maintenance, and taxes. The faster they can get rid of the bad loan the better. Foreclosure processes are also very time consuming and expensive. In most cases the time, loss of money, and headaches that come from doing a foreclosure is always more than if they agree to a short sale. In the case of a short sale the owner still pays the miscellaneous costs and brings a buyer to the table. It saves the bank time and money.

In addition, holding non-performing assets (like houses) negatively affects the banks stock value. The more houses they have the less their stock is worth.

Should I continue to pay my mortgage while in the short sale process?

We’ve heard from the banks that ideally this is a good idea and may help you get on the bank’s “good side.” However, you are performing a short sale because it’s a financial burden to pay your mortgage. Some financial institutions state that in order to start a short sale process you need to be at least one payment behind – this is not always the case and every situation is unique and needs to be evaluated on a case-by-case basis. As a real estate agent, I cannot offer you legal or financial advice so speak to a lawyer or your CPA/accountant.

What paperwork is needed to start the short sale?

There is a lot of paperwork involved in short sales and every bank is different. Some banks make you fill out their financial worksheet or make you and the buyer sign an affidavit specific to their bank. However, in our experience the following documentation is required in nearly every short sale process:

3rd Party Authorization Form – This allows your agent to speak the bank on your behalf. We have a general form we send to you but some banks send their own form and require it to be notarized.
Hardship Letter - This explains what your distressed situation is to the bank and how you came to be in such a financial burden that you are no longer capable of paying your mortgage. Whatever you claim in your letter you must provide documentation (because the bank will ask for it) and this includes: death certificate, separation agreement and divorce decree, employment termination notice, pending lawsuit, physician’s statement with medical bills, or years of paystubs. Some banks have a form letter, but it’s always best to write one yourself as well.
Financial Worksheet – A form that summarizes your income and your monthly expenditures. We have a general one that’s very detailed but many banks will have their own form.
Two years most recent tax information – This includes your full tax return and your W2′s
30 days current income information – Your most recent paystubs from at least the past 30 days (if you can provide more that’s even better). Also any unearned income statements including retirement, social security, and unemployment. If you are self-employed you will need your year-to-date profit and loss statement and the last two filed US Business Tax Returns (1065/1120S/1120) with K1′s and all schedules.
90 days current bank account information - Your most recent bank statements for all your accounts. This includes: Checking accounts, savings accounts, credit cards, loans, and retirement accounts. Many banks have the information available online. All page are needed even if the last few pages don’t contain any actual account information.
HOA/Condo Association and Real Estate Tax statements - To show if you are current or delinquent on these payments as well.
Most recent mortgage bills – This provides us the loan number information and contact numbers. If you have more than one loan we will need a copy of each bill.
Any correspondence from the bank or bank’s attorney – This helps us halt the foreclosure, lets us know what’s being communicated to you, and lets us know who to contact.

This is just some of the paperwork needed. As your agent we need to provide information of our own including the listing agreement, ratified contract and all addendum, and all marketing information dealing with listing your home. If you want to know more about what we provide on our end we will be happy to sit down with and explain it to you.

My home needs some repairs. Am I expected to make these repairs?

No, you aren’t expected to make any repairs to your home. Almost all short sales are sold as-is which means that the seller is not expected to make any repairs on the home. That being said, depending on the extent of the damage it may prevent certain buyers from buying your home. Certain loan packages require homes to be in a specific condition. If the home is in worse condition than the loan’s thresholds the bank backing the loan will not provide the buyer the financing. In the most extreme cases you may only be able to accept all cash offers. As each situation is different, we can only know how this will affect you once we’ve seen the property.

As the seller, you can choose to make repairs to enhance your home’s ability to sell. It is entirely up to you on how much you want to repair. In some extreme cases, the bank (your lender) may repair the home on your behalf.

Marketing your short sale is just like marketing any property. A clean, well maintained home gets offers faster than a dirty, unmaintained one.

Can you explain how the process works?

Initially, doing a short sale starts of the same way as a regular sale (aside from the price). We come to you and have you sign a listing agreement and then we list and market the home on your behalf.

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Once we have an interested buyer they will submit an offer. You can choose to counter it (countering on price or any condition in the contract) or accept it. In the case of short sales, you will most likely not counter. Once you accept the offer you sign it and send it back to the buyers which ratifies the contract. Although you have ratified the contract your lender reserves the right to counter or reject the contract. Agents understand this as “subject to 3rd party approval.”

Once the offer is ratified we send the offer with all necessary paperwork to the bank (or banks if you have more than one mortgage). Typically the first time we hear back from the bank is from a processor. The processor sets up the package and ensures all necessary paperwork has been received, updated, and correct. Processors will typically send you specific paperwork to sign or fill out and will ask you for any missing paperwork like more recent paystubs and bank statements.

Once the processor has approved the paperwork it is then sent to a negotiator. The negotiator works closely with the lender or investor who holds your deed of trust (your loan). The negotiator’s job is to do everything in his or her power to make the short sale work and does not necessarily represent one party over the other. The negotiator presents your contract to the lender or investor who in turn approves, counters, or rejects/cancels it.

If the investor approves the short sale he or she will send you an approval letter. The approval letter is sent to the title/closing companies and the property closes and sells and everything is finished. If you have more than one mortgage you may receive a conditional approval letter which is basically an approval letter but is conditional on the other banks approval. All lenders need to agree on your short sale in order for it to go through, regardless of how much you owe to each bank.

If the investor counters the short sale it works the same way as if you countered it. Typically the lender or investor will counter sales price or closing costs. The buyer can then decide to agree, counter, or walk away from the contract.

If the lender or investor rejects/cancels the short sale (or if the buyers walk) the short sale is completely canceled and the foreclosure process starts up again. All parties (the seller, the buyer, the negotiator, and the lender) prefer to avoid this if at all possible and the lender will counter as much as possible before canceling the entire process. This typically only arises when a buyer refuses to agree to anything the lender counters.