When You Have to Short Sell Your Home

Losing Your Home Is Hard

Losing a home is not a pleasant experience at any time. But, when you are losing your home because you can't afford the mortgage payments, the humiliation and embarrassment is huge. Your credit score is destroyed, your family is ashamed, and your dignity is in shreds. There are alternatives to bankruptcy or foreclosure, not always pleasant, but sometimes we can't be too choosy about methodologies. One of the options in a situation like this is called short sale. If it's any consolation, short sales have increased three-fold in the US since 2008, so there are a lot of people in the same boat.

Be Prepared - Making the Right Connections

When a lender agrees to a short sale it means they are willing to accept less money than the amount due on the mortgage. Not every lender is favorably disposed to short sales and not all sellers or properties qualify for short sales. The requirements vary from lender to lender, with some requiring a lot of paperwork from a borrower.

In order to know what is required by the lender, you may have to make several phone calls before you finally connect with the right person. You want to talk to the supervisor or decision maker responsible for handling short sales. It is typical for a lending institution to keep your information protected unless or until they receive written authorization for disclosure. The best way to gain cooperation from the lender is to provide a letter giving permission for the lender to talk with the real estate agent, closing agent, title company or lawyer - whomever you are dealing with - about your loan.

Closing Statement - What's Owed

Along with a letter of authorization, a preliminary net sheet, or closing statement, is necessary. This is an estimate of the cost of the sale and potential earnings from the sale of your home. On the sheet you will show the sales price, costs of sale, unpaid loan balances, outstanding fees and payments due, as well as real estate commission if applicable. If numbers are beyond you, your lawyer or closing agent should be able to assist in the preparation of this statement. A short sale can be averted if the bottom line indicates you'll be making some money.

Hardship Letter

A hardship letter is basically a document that tells the lender how you ended up in the kettle of fish you're in and it pleads for acceptance of a lesser amount to be paid than what is owed. The letter isn't about walking away from your house because it isn't worth what you paid for it. Hardship is really that and it is good to know that lenders really are people too. They understand if you lost your job, your partner is divorcing you, or there is grave illness that affects income. What they won't like is situations involving criminal behavior or dishonesty.

Coming Clean About What You Have

Honesty is the best policy and it is especially important when you are disclosing assets and your financial situation. Lenders want to know whether you have money tied up in investments, bank accounts, negotiable instruments, cash or anything of tangible value. They're not in the charity business and need to know for sure that you have no means of paying the money back before they'll consider a short sale. Your bank account will come under scrutiny as well. If there are unusual deposits, withdrawals, or large numbers of checks being written, be prepared to explain what's going on.

A comparative market analysis can be prepared by your agent that will show the prices of homes in a category similar to your house. A copy of the offer to purchase as well as a copy of your listing agreement are the final documents you'll need.