Documents required by lenders in order to begin the Short Sale process

Posted by Owen McGab Enaohwo on Sep 19, 2009 | View Comments

A Short Sale is a type of real estate transaction wherein a homeowner sells their property for less than what they owe the lender. For most lenders to consider a short sale, the homeowner must be experiencing a financial hardship and is unable to make their mortgage payments. Also, the mortgage itself has to be upside down; meaning that the value of the property has dropped and hence there is no equity. The lender takes a loss, and any unsettled balance is usually forgiven. In order to begin the process of negotiating and then approving the short sale, you will need to submit a set of documents required by most lenders. The primary documents are:

• Authorization to Release information. This authorization is an important document because it instructs the lender to discuss your loan with a third party, which in this case is your real estate agent who is helping you navigate the short sale process. The authorization should contain the following data.

a. Name of all the borrowers

b. Social security number of all the borrowers

c. Address of Property

d. Names of lenders/creditors

e. Loan number

f. Signatures of all the borrowers

g. Date

h. Name and contact information of your real estate agent (or whomever you want the lender to release your loan information to)

• Borrowers Financial Statement. This document highlights in detail your assets and liabilities. It is a worksheet that accounts for all your income and expenses. It also should include your co-borrower’s financial information.

• Listing Contract. This is the contract between you and the listing agent. It is needed so the lender can see that your agent has made the effort to expose the property to as many potential buyers as possible in order to received offers by placing it on the Multiple Listing Service (MLS). It also highlights the commission charged by the real estate agent. Agents are often needed in order to speed up the process.

• Purchase and Sale Agreement. This is an agreement that contains the accepted buyer offer. The contract should be legitimate and must be signed by all the owners of the property. A short sale package is considered incomplete without this document. Only packages with a contract that has been signed by both the buyer and the seller should be submitted to lender.

• Borrowers last two pay stubs. You need to include your two most recent pay stubs in the short sale package. This allows the lender to easily determine how much you make and verify your financial hardship. If you are self-employed you can provide a loss and profit report. For unemployed borrower you must present the latest pay stub available.

• Two months of Bank statements. You need to provide your two most recent bank statements. If you have more than one account, all the statements must be made available for the lender to review.

• Last two Tax returns. You need to provide your two most recent yearly tax returns. If you have missed filing your taxes then present the latest available and create a personal note to the lender stating the reasons why.

• Personal hardship letter. This letter must contain your true financial situation and the reasons why you need a short sale. It’s always better to mention in this letter all the steps you had taken previously to avoid having to sell the house, how getting a short sale approved is much better for you than a foreclosure and that you understand that you will not be getting any proceeds from the discounted sale of the property.

• Comparable Market Analysis of value (CMA). This is based on the characteristics of the property being considered, the number of similar properties for sale and so on; it is the estimated current value of the property. Your real estate agent should prepare the CMA and submit it with short sale packet because it helps to give the lender a clear sense of how property values have dropped in your area, hence the need for the short sale. Once the negotiation has begun, the lender will usually order a more detailed CMA a Broker Priced Opinion of value (BPO) from a third party company in order to determine the current value of the property.

The documents listed above are the vital documents needed by most lenders to begin the scalled hort sale process. However each lender might demand additional documents, hence your agent should contact the lender ahead of time and get their list of required short sale documents before submitting the complete short sale package.

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