Short Sale FAQ

Short Sales Defined

When lenders agree to do a short sale in real estate, it means the lender is

accepting less than the total amount due. Not all lenders will accept short sales or

discounted payoffs, especially if it would make more financial sense to foreclose;

moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks. For your

protection, I suggest that all borrowers:

      ·     Obtain legal advice from a competent real estate lawyer

      ·     Call an accountant to discuss short sale tax ramifications

As a real estate agent, I am not licensed as a lawyer nor a CPA and cannot advise

on those consequences. Except for certain conditions pursuant to the Mortgage

Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt

forgiveness as income, and there is no guarantee that a lender who accepts a short

sale will not legally pursue a borrower for the difference between the amount owed

and the amount paid. In some states, this amount is known as a deficiency. A lawyer

can determine whether your loan qualifies for a deficiency judgment or claim.

Although all lenders have varying requirements and may demand that a borrower

submit a wide array of documentation, the following steps will give you a pretty

good idea of what to expect.

1. Call the Lender

You may need to make a half dozen phone calls before you find the person

responsible for handling short sales. You do not want to talk to the "real estate short

sale" or "work out" department, you want the supervisor's name, the name of the

individual capable of making a decision.

2. Submit Letter of Authorization

Lenders typically do not want to disclose any of your personal information without

written authorization to do so. If you are working with a real estate agent, closing

agent, title company or lawyer, you will receive better cooperation if you write a

letter to the lender giving the lender permission to talk with those specific interested

parties about your loan. The letter should include the following:

      ·     Property Address

      ·     Loan Reference Number

      ·     Your Name

      ·     The Date

      ·     Your Agent's Name & Contact Information

3. Preliminary Net Sheet

This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due

and late fees, including real estate commissions, if any. Your closing agent or lawyer

should be able to prepare this for you, if you do not know how to calculate any of

these fees. If the bottom line shows cash to the seller, you will probably not need a

short sale.

4. Hardship Letter

This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.

5. Proof of Income and Assets

It is best to be truthful and honest about your financial situation and disclose assets.

Lenders will want to know if you have savings accounts, money market accounts,

stocks or bonds, negotiable instruments, cash or other real estate or anything of

tangible value. Lenders are not in the charity business and often require assurance

that the debtor cannot pay back any of the debt that it is forgiving.

6. Copies of Bank Statements

If your bank statements reflect unaccountable deposits, large cash withdrawals or

an unusual number of checks, it's probably a good idea to explain each of those line

items to the lender. In addition, the lender might want you to account for each and

every deposit so it can determine whether deposits will continue.

7. Comparative Market Analysis

Sometimes markets decline and property values fall. If this is part of the reason

that you cannot sell your home for enough to pay off the lender, this fact should be

substantiated for the lender through a comparative market analysis (CMA). We can

prepare a CMA for you, which will show prices of similar homes:

      ·     Active on the market

      ·     Pending sales

      ·     Sold listings from the past six months.

8. Purchase Agreement & Listing Agreement

When you reach an agreement to sell with a prospective purchaser, the lender will

want a copy of the offer, along with a copy of your listing agreement. Be prepared

for the lender to renegotiate commissions and to refuse to pay for certain items such

as home protection plans or termite inspections.

Now, if everything goes well, the lender will approve your short sale. As part of

the negotiation, you might ask that the lender not report adverse credit to the

credit reporting agencies, but realize that the lender is under no obligation to