- It is critical to submit a complete package to the lender when negotiating a short sale. Both homeowners and Realtors are required to submit documentation. When a lender receives a request to approve a short sale transaction, one of the first stages of their review process is “Document Review”. Unless ALL required documents are included in the submission package, the file will not move beyond the “Document Review” stage, meaning negotiations will not commence. In addition, all dated document (paystubs, bank statements, hardship letters, seller financial forms, etc.) must be dated within 30 days of submission to the lender.
- Homeowners should begin gathering their documents the moment their house is listed for sale (refer to Seller’s document check list). Once a contract of sale is ratified, the seller will need to quickly submit their complete, updated package to their lender. In addition, during the course of negotiations the lender may require the seller to submit additional documentation; time is of the essence in responding to this request. Failure to submit the documents requested by the lender will result in a delayed timeframe for the lender’s decision. In some cases, a delay in submitting documents requested by the lender may even result in the lender de-activating the file, causing the process to start over from the beginning. All individuals on the Note must comply with the documentation requests, with no exceptions.
- Short sales are complex transactions. All parties must be willing and able to comply with the lender’s requirements in an expeditious manner. Motivated, cooperative sellers and Realtors can have the greatest impact on the successful outcome of the short sale transaction.
- Lien holders and lenders are not obligated to approve a short sale and may impose additional requirements on the consideration of a short sale. Should the lender require a modification of the terms of the Purchase Agreement, neither the buyer nor seller are required to accept such modified terms.
- There is no guarantee that foreclosure will not occur while the seller pursues approval of a short sale from their lender(s).
- Buyers may be required by seller’s lien holder to provide evidence of financing pre-approval, approval, or sufficient funds to close the short sale transaction.
- Some lenders may require that the buyer provide personal information (Date of Birth, last 4 digits of SS#) to prevent fraud.
- A property sold as a short sale is sold “as is”.
- The seller’s lender may or may not approve the seller paying concessions to the buyer. When approved, the maximum concessions allowable are typically 1-3%.
- Short sale transactions are lengthier transactions than a traditional real estate transaction. The seller’s lender may have a lengthy process to approve the short sale, and if more than one lender must approve the short sale, the time period for full approval may be extended. Lenders typically take 60 days to approve a short sale on average; however timeframes could be as lengthy as 120+ days.
- Lenders that approve short sale transactions do not guarantee extensions of the approval, therefore it is essential that buyers realize “time is of the essence” when obtaining financing or closing the short sale transaction once approval is issued by the seller’s lender(s).
Sellers Document Checklist
Required Short Sale Documentation All parties should begin gathering documents at listing stage. All applicable documents will be required to be up-to-date (within 30 days) at time of submission to the lender(s) once a ratified contract of sale is provided.
All parties on the NOTE will need to provide the following documentation:
Paystubs, hardship letter, and bank statements must be dated within 30 days of submission
- 30 days consecutive paystubs must be dated within 30 days of submission to the lender
- Proof of additional forms of income (child support, alimony, etc.)
- 3 months consecutive bank statements on all accounts must be dated within 30 days of submission to the lender
- Last two consecutive years tax returns
- Last two consecutive W-2s
- Last two consecutive years business tax returns, if self-employed other than sole proprietorship
- Signed and dated YTD profit and loss, if self-employed, other than a corporation
- Lease on subject property, if subject is tenant occupied
- Mortgage payment coupons or other statements re: lender’s liens against property
- If parties applying for the short sale are currently separated or divorced, separation agreement and/or divorce decree will need to be provided
- Any correspondence from lender regarding the solicitation of a short sale
- Any correspondence from lender regarding foreclosure or auction proceedings
- Lender specific forms
- Any correspondence from H.O.A. regarding delinquency amounts
- Lease for current residences that seller(s) pay rent on. If no lease agreement is signed, a letter signed and dated explaining current living situation and what is paid for rent.
- 4506-T (Form authorizing lender to request Tax return if needed)
- Hardship letter – must state that they do not want to keep the property and wish to be reviewed for a Short Sale – should be detailed with dates and dollar amounts and must be dated within 30 days of submission to the lender
- Lender specific forms (seller should call lender to obtain proper forms)