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Short Sale What to Expect

Updated on December 17, 2014

Avoiding a Foreclosure

Losing a home is not an easy thing to experience. There’s a very distinct since of shame one feels when going through it. We place a great deal of pride, love, and hard work into our homes. When we must move on because of changing circumstance it can be very emotional and difficult.

A foreclosure is devastating to your credit and peace of mind. Working with the bank with a deed in lieu of foreclosure or a short sale may be better options. But what is right for you? What are the benefits? What are the drawbacks? How difficult is the process? What can I expect? I attempt to answer these questions while focusing on the process and problems that may occur going through the short-sale process.

Hardship Letter Example

Reason for Short Sale

The events outlined here were the direct result of my management contract expiring. With my job going away there was an offer from a strong company with competitive salary and benefits as a full time employee. This job required a move to another state. Unfortunately the salary of the new position was less than my contract position, but the benefits far outweighed the negatives. This resulted in the inability to maintain the mortgage on this property while paying for another hundreds of miles away. This is the information that was detailed in the hardship letter to the bank.

Foreclosure

A foreclosure occurs as a result of delinquent payments on a mortgage debt. When the mortgage goes into default the mortgage company has the ability to sell the property and apply the proceeds to the outstanding balance of the loan. As a rule of thumb a foreclosure can and most likely will inhibit your ability to obtain a mortgage for seven years. Whereas a short sale is believed to be recoverable within two years.

The deed in lieu of foreclosure is similar to that of the foreclosure. However, one must first attempt to sell the home prior to using this option. These time frames are of course relative to your specific situation. If there are other credit issues, bankruptcy or late/missed payments you can expect the recovery to linger.

Short Sale Scenario

What does short sale mean?

Short sale has nothing to do with time. In the scenario here it took 20 months from starting the paperwork with the bank to the closing date. A short sale is an agreement between the homeowner and the mortgage lender to list and sell a mortgaged property with an understanding that the property may sell for less than the total amount owed for the first mortgage. Simply put the mortgage company may or may not accept an offer on the property that is less than what is owed against it.

Short Sale Getting Started

The first thing you need to do before deciding to proceed with any foreclosure, deed in lieu, or short sale is to contact a credit counselor. The bank will likely not even speak with you until this is done.

Before contacting the counselor have the list of information below available and put into a format that is easy for you to manipulate. An Excel spreadsheet can be a lifesaver when attempting to track all the information you need.

Example documents can also be found by clicking here → example sheet.

Gather your information (everything listed below for every person listed on the mortgage)

  • 4506-T Form or 4506-TEZ
  • Mortgage Statement detailing the principal, interest, and escrow
  • Rental Agreement
  • Liabilities
  • Assets
  • Most recent two years Income Tax statements including all schedules & forms
  • Most recent two years W-2’s, 1099’s, etc.
  • Recent Copy of Property Tax Statement
  • Most recent 2 Pay stubs
  • Most recent 2 months bank statements (Checking/Savings/Money Market/Brokerage)
  • 401k statement
  • Recent copy of Hazard, Flood Insurance Declaration Statement
  • Write a short paragraph stating why you need a short-sale or deed in lieu of foreclosure

Credit Counseling

The best place to start with the credit counselor is at Making Home Affordable.

The Making Home Affordable website is a government site that helps people work through or avoid foreclosures. It exists to help stabilize the housing market and the economy. The resources provided here are detailed and very helpful in developing a budget and finding out what direction to go in.

Review some of the information on the Making Home Affordable website to ensure you know the basics. Once you get all your information together you will be directed to a credit counselor. The credit counselor will walk through the information you compiled for all your liabilities and assets to help create a budget to present to the bank. The counselor will also help with contacting the appropriate person at the bank and even call them for you while on the line. Even if you feel comfortable going it alone I highly recommend going this route. Starting off on the right foot will save time in the end.

Realtor

If there is one thing I recommend more than anything, it is find a Realtor that knows what they are getting into. Even though this particular scenario dragged out for almost two years the Realtor held it all together. This sell would never have happened without her diligent hard work. Amanda Black was always professional and the driving force in the process.

A short sale of a property takes a lot of paperwork and tenacity for you and your Realtor. Be sure that you discuss your intent when you are listing your home for sale. I found that my first Realtor did not want to show the property or help when it came to short sale. My Final Realtor listed above did a fantastic job.

What to Expect

Everyone will have a different experience depending on his or her bank, Realtor, and own financial situation. The following is a timeline of the process as I went through it over the 20 months from start to finish.

The bank was less than efficient and had a lot of difficulty maintaining records and communicating within its own organization. The entire package of documents was requested and sent five times to the bank the first year and another three times over the last 8 months. My point stating this is, you will get frustrated. There were many times that the bank would advise the Realtor of required paperwork and not even notify me the owner. Luckily the Realtor was very proactive and helped to ensure all the documents were submitted quickly.

It does make it easier to get the documents that won't change at all together in a PDF file. This way you can just add those to the newly required documents if they are requested again. I found that each time a new document was requested the bank wanted everything submitted again. Having this information already put together in a file saved a lot of time and trouble. I simply had to add the latest two months of accounts and pay stubs, etc. and send it on.

Even though all of this information had to be updated each time and submitted, the end result was a positive one. The bank requested documents much more than I would ever have thought they would. However, the relationship manager I dealt with was always very friendly and helpful when I spoke with them. It seemed they understand the stress and embarrassment I was going through and truly cared. That didn't flow from the review team at the bank, but the relationship managers I dealt with were also wonderful.

The total owed on the property was $166,000 by the time an offer was accepted. That included the two mortgages as well as late fee's, etc. The bank finally accepted an offer of $89,000. My journey started January 24, 2013 and the sale of the property closed October 15, 2014.

My Short Sale Timeline

Short Sale Timeline
 
 
Date
Task
Notes
1/5/2013
Contact Bank to attempt refinancing.
Bank would not even discuss it.
1/24/2013
Meet With Realtor
Listed home with 1st realtor.
2/5/2013
Stopped making Payments on 1st Mortgage
 
2/5/2013
Meet With Credit Counselor
 
2/11/2013
Sent Full Set of Documents to Bank
Bank Will not Accept Short Sale Paperwork until there is an offer
5/1/2013
Stopped Making Payments on 2nd Mortgage
Bank advised they will not accept partial payments.
6/14/2013
Meet With Realtor
1st realtor did not contact me since listing. Listed the home with a new realtor.
7/27/2013
Sent Full Set of Documents to Bank
Be sure to write the loan number on every page of every document.
8/23/2013
Meet with Bank.
Bank advised that if full payment is not made it will still go into default.
8/29/2013
Sent Full Set of Documents to Bank
 
9/6/2013
Meet with Bank.
Rule of thumb is the bank will not accept an offer unless it is 80% of loan value.
10/11/2013
Sent Full Set of Documents to Bank
 
10/25/2013
Received Offer
$80,000
11/4/2013
Sent Bank More Documents.
HAFA Intention Letter & Third party Authorization, 4506-t
11/19/2013
Sent Bank More Documents.
Income verification, Hardship letter, RMA conflicting start dates, HAFA Intention letter, third-party authorization again
12/7/2013
Sent Bank More Documents.
Income verification, Hardship letter, Intention letter, and third party authorization
12/16/2013
Meet With Realtor
Extended listing
12/21/2013
Sent Bank More Documents.
Income verification, Hardship letter, Intention letter, and third party authorization
02/24/2014
Sent Bank More Documents.
Sent bank full package.
03/04/2014
Sent Bank More Documents.
Sent bank full package.
03/26/2014
Sent Bank More Documents.
rental agreement, listing agreement, HUD-1, Purchase contract, & complete hardship affidavit again
04/28/2014
Meet with Bank.
Bank conducted an appraisal (I never heard what it came to)
07/23/2014
Meet With Realtor
Required me to sign a form stating I still want the short-sale. Purchasers had to sign as well.
07/24/2014
Meet with Bank.
HUD-1 statement, Extension of listing agreement, and decline of modification options letter
09/09/2014
Meet with Bank.
Bank accepted the offer of $89,000.
10/10/2014
Meet With Realtor
Closing scheduled for 10/15/2014
10/15/2014
Meet With Realtor
Closed on house.
10/21/2014
Meet with Bank.
All mortgage accounts now indicate closed.
 
 
 

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© 2014 Richard J. Taylor

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    • Carol McCullough profile image

      Success In Life 2 years ago from U.S.

      Great article! Very useful information for someone going through this unfortunate situation.

    • RichardJTaylor profile image
      Author

      Richard J. Taylor 2 years ago from Knoxville, TN

      Thank you for the nice words. Short sales can be cumbersome, but i have heard others say their experience was much better than mine. Then again others worse.

    • Mel Carriere profile image

      Mel Carriere 2 years ago from San Diego California

      Brilliant article! I never realized what an exhausting process this was. This was superbly written and I intend to share this with my hub pages followers, because someone might be in deed of this information. Great hub!