Perhaps you are finding yourself in the situation that you need to sell your home but it’s not worth as much as the current mortgage.  What do you do?  This is a fairly new circumstance for homeowners, and many Realtors have either avoided short sales or have not educated themselves properly to handle the challenges they present.

If you read yesterday’s blog you understand what the buyer faces when attempting to purchase a short sale.  Today I will get into specifics of the seller.

Before you even attempt to call a Realtor I suggest you weigh the options heavily.  There may be another alternative for you, such as staying in the property or selling as a short sale but bringing cash to the table so that it doesn’t affect your credit.  Another alternative is to contact your lender to try to work out a mutually-satisfactory solution such as lowering your interest rate or delaying payments for a period of time.  If none of these seem to work, then maybe a short sale is your next best bet.

A short sale cannot happen unless the lender approves, and you must be able to prove hardship in order for this to happen.  A lender is not going to approve a short sale just because you are going to lose money.

When you meet with your Realtor to sign the listing agreement he/she will advise you on the consequences of a short sale, such as possibly having to bring money to the table or being taxed as income on the amount between what is realized for the property and what is still owed, even though you will receive no funds at the closing.  IN A SHORT SALE THE SELLER RELINQUESHES ALL PROCEEDS TO THE BANK.  It is always advisable to refer to an attorney or tax professional or both in these matters.

Your Realtor will bring you a list of documents which need to be collected as soon as possible and submitted to the bank along with a letter of hardship.  These documents will tell the story of why you are requesting a short sale.  Some of the allowable circumstances may include medical, death, divorce, mandatory job relocation, or even extended military leave.  Whatever the reason, you must explain in a letter and provide backup documentation that will include 2 years of tax returns, 2 years of W-2s, the last 2 months of bank statements, 2 months of pay stubs, last 2 months of mortgage statements, any other liens on the property such as IRS liens, child support or alimony documents, and an authorization for the bank to release information to your agent as your representative.  This packet must be put together quickly.  I can’t stress enough that a seller’s cooperation and candor are  imperative to the success of this transaction.

The time line here is not predictable.  If the packet is put together properly, as the bank mandates, and sent in quickly, you may have a better chance of communicating with them.  If the packet isn’t in the correct “stack order” (the order in which the bank wants the documents presented) then they may put it aside or not look at it at all.  The most difficult part in a short sale is getting the bank to agree to it No. 1 but also getting them to look at the paperwork.  Both buyers and sellers need to understand that lender approval may take several weeks or even months to obtain.  Once that approval is obtained, however, the bank gives the buyer 30 days with which to close the deal.

I am asked constantly why the banks don’t move more quickly in these circumstances so that they can sell a property.  If you put yourself in the bank employee’s position, perhaps it’s easier to understand.  Even if you are a top employee of a bank and had been there for years, if they placed 700 files on your desk for you to manage, how quickly could you get through the stack? 

You will have the greatest chance of success in a short sale by dealing with a Realtor who is knowledgeable of the process, articulate in their communications and willing to go the extra mile to get the job done.  Bank protocol always needs to be followed, a net sheet needs to be submitted with every offer, and every conversation needs to be documented.   It’s a race to the finish.  If you are still paying your mortgage, then you have more time.  If you are delinquent in your payments, then the clock is ticking and you either need to sell quickly or it will foreclose.

Once a contract is accepted (yeah!!) your next challenge is dealing with title and escrow.  In our Reno market, many banks have contracted with title companies in other areas, such as Las Vegas.  It becomes more difficult to deal with a company who is not familiar with Reno and how we normally do business.  Also, as we are not close to Las Vegas, signings are done locally through a notary.  The problem I see with this is that the notary can verify that you are who you say you are, but they can’t answer questions or deal with problems that invariably come up at the closing table.  I have made it a practice to employ an experienced title officer in our market to go over the documents with the buyers/sellers so that any problems can be caught before going to closing.  An experienced title officer will make the process much less painful.

A buyer may choose not to consider a short sale because of its complications; a seller may have no choice.  Select a Realtor who can see you through to the end with a successful close.