How To Navigate The Short Sale Process

There are numerous ways to lose a home, however surrendering ownership in a manner that ruins credit, strips away the owner's dignity as well as embarrassing the family is very challenging. Owners who are staring down foreclosure or worse...bankruptcy...there are other options; "short sale" and now "loan modification".

A "short sale" is a situation where the homeowner owes more than the house is worth. The homeowner negotiates with the lender to sell the house for less than the value of the note. Often times this involves both a first and a second mortgage. When the real estate goes to contract, the lender(s) must agree to the "short" terms. Sometimes the sales price is rejected by one or both lenders...both must agree. The second mortgage stands to be in the weakest position here. Whether you are buying or selling "short", it is always advisable to seek the advice of a competent real estate attorney and your tax professional to ensure that you are properly advised in all aspects.

Short Sellers may be liable for income taxes on the portion of the loan that is "short", as the IRS views this as income (see your tax professional for advice) per the Mortgage Forgiveness Debt Relief Act of 2007. Lenders often will demand a myriad of documents verifying different aspects of the seller's personal and financial profile.

The following steps give you an idea of a game plan to follow throughout the process:

1.] Call the lender.
2.] Submit a Letter of Authorization (LOA. This is done
for purposes of the agent representing you) It should include;
property address, loan reference number, name of the
borrower, as well as your agent's name and contact information.
3.] Preliminary Net Sheet of Closing Costs.
4.] Hardship Letter.
5.] Proof of Income and Assets.
6.] Copies of Bank Statements.
7.] Comparative Market Analysis of the Property.
8.] Purchase Agreement & Listing Agreement.

When you employ the services of a qualified real estate professional, they should give you a comprehensive list of what you need to provide the lender. Once you have the documents put together, you have spoken to the lender along with providing the LOA for your real estate agent, your agent should take control and handle the situation from there on out.

The short sale process can be a daunting task. There are many challenges that arise while trying to successfully close a short sale. Knowing this, it is very important that you as the homeowner do your due diligence when selecting the firm and the agent to represent your transaction. This is critical because a real estate agent can easily make or break a short sale transaction.

If you cannot successfully transact a short sale, and all other means have been exhausted, the option of foreclosure exists...although a more drastic approach...sometimes it can be the "best of the wors"t...we will discuss this important aspect next. Until then...