A short sale is when a property is sold for less than its remaining mortgage principal balance, and executed as a way for both the existing homeowner and mortgage lender to reduce their respective losses.
Typically, although not always, short sales are reserved for situations of extreme financial hardship; just prior a bank beginning foreclosure proceedings.
Short sales are not automatic, however. Homeowners must often prove the merits a short sale to their lender, which often involves documenting that selling the home for less than its worth is the best and most viable option for all parties involved.
The short sale process starts with a letter of hardship.
To prove your short sale worthiness to the bank, you’ll be asked to submit a cover letter which explains your hardship, and to provide full financial disclosure. You will also need your original purchase contract, a balance sheet of your income and expenses, your asset statements and proof of income, and two years of federal tax returns.
Lenders prefer handwritten letters and are more apt to agree to a short sale for homeowners who may have lost jobs or encountered significant medical bills, as opposed to those who engaged careless spending.
Draft a compelling letter and avoid extraneous details. Be short, be thorough, and be complete.
In addition, note that the following traits can help speed your short sale approval:
- The home is marketable
- A second lien holder, if one exists, is amenable to short sale proceedings
- A foreclosure is not scheduled within the next four months
Choosing to short sale your home is not something which a homeowner should pursue alone.
The process of selling a home in a “distressed” state is significantly different from selling a non-distressed home. Homeowners selling in a short sale should seek the advice and counsel of an experienced real estate agent.