Understanding The Short Sale Process

A Short Sale transaction is similar in many ways to a standard Real Estate Transaction when viewing the process on paper.  In reality, the intervention with the bank or lender requires a few extra critical steps.  State law also governs the activities of those who act on behalf of property owners who are facing Foreclosure, therefore it is essential to understand the process from start to finish prior to making your decision.

Here is the process:

  1. Seller contacts us for consultation.

  2. Pull comps and property profile to determine quick estimate of value and mortgage debt.

  3. If short sale is viable, full BPO done to determine value/sales price range.

  4. Seller signs listing agreement and provides mortgage payment coupons.

  5. Seller assembles short sale package documentation including hardship and authorization letters.

  6. Property is listed in the MLS.

  7. Price may need to be adjusted until an acceptable offer is received.

  8. Once acceptable offer is received, the purchase agreement is signed by the seller thereby accepting the offer – escrow may be opened at this point.

  9. The short sale package and purchase agreement are submitted to the bank / lender.

  10. Once negotiator is assigned, discussion of the short sale with the bank/lender begins.

  11. If short sale is approved, terms are relayed to all parties.

  12. Buyer satisfies financing requirements.

  13. Escrow closes.

Short Sale Documentation

We will need to be prepared with the following information:

  • Are you in Bankruptcy?  (Reason:  The court and Bankruptcy Trustee must agree to the sale).

  • What is the current loan balance; type of loan; interest rate; impound account information; and other loan detail?

  • Are there any past due payments?

  • Has a Notice of Default (NOD) or Notice of Trustee's Sale been recorded?

  • Are there any other liens, judgments and/or taxes?

Typical Documentation Required For a Short Sale Package

1.  Letter of Authorization
The bank or lender will require a letter from the Seller to permit the listing agent/broker to speak on their behalf and represent them in negotiations.  It is also advisable to provide the Listing Agreement between Broker/Agent and Seller.

2.  Hardship Letter
The Seller is required to explain (in writing) why they are requesting a Short Sale.  Reasonable hardship needs to be established to show that your ability to continue paying the monthly mortgage payment(s) has been impacted.

3.  Purchase Agreement
The bank or lender requires an executed contract between Buyer and Seller contingent upon acceptance of the Short Sale.  Similar to more standard Seller transactions, the bank and lender will require documentation to support the Buyer is qualified with acceptable credit scoring (FICO), Lenders Approval, and Proof of Funds (Verification of Deposit) for down payment.

4.  Estimated Settlement Statement (HUD-1)
The bank or lender requires a line item detail of all expenses incurred prior to and/or after the sale.  The Escrow Company utilized in the transaction will provide this information.

5.  Sellers Financial Information
Similar to when you originally qualified for your loan to purchase this home, the bank or lender will require submission of bank statements, investments, paycheck stubs, etc.  It will be determined form their examination if you're circumstances are compelling enough to warrant a Short Sale.

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Sunburst Realty is the dba of Sunburst Mortgage Corp; a licensed corporation with the California Department of Real Estate.  License Number 00990963.  Sunburst has been licensed with the State of California since 1988.  To access real time licensing information online with the DRE Click Here.