So you are going to try a short sale as an option to prevent foreclosure? Great, now what? Your next move is to put together your short sale request for your mortgage lender. This is your shot to convince them that they should take your deal.
In case you landed here from an Internet search and you want to know what a short sale is, the first part of this two articles series on short sales discusses Short Sale An Option To Stop Foreclosure.
Call Your Mortgage Lender's Loss Mitigation or Loan Workout Department
Call your mortgage lender's loan workout department, or loss mitigation department. This is the group of people at your lender who can work with you on your request. A customer service representative will not have the authority to work with you so do not waste time trying to convince them of accepting your short sale request. They will however, know who to put you in touch with to proceed.
Once you get to the right department, you will want to ask for their short sale packet. While you are on the phone with the workout department try and see if you can get them to indicated what mortgage balance they might settle for if you get your package in and approved. They might give you a ball park figure. It is helpful to get this number because it is the sales price that you are going to be looking to sell your home for.
What To Say In A Hardship Letter
Once you have a sales price in mind, the first thing to do is to put together why your lender should take the short sale. You could think of it as a proposal, but this letter is a little different as it needs to include your story about why you are behind on your payments and that things are not going to be getting any better any time soon. We in the industry call this a hardship letter or a letter of explanation.
This letter should cover what happened. You don't need to go into a long drawn out story about what happened. Just layout the facts. If you were laid off, or had an illness, or you have an ARM that you didn't understand just tell it like it is. Be honest and above all else, don't blame the mortgage company. Especially don't blame the mortgage company if you didn't understand your ARM. You can blame the loan officer that got you the loan, but don't blame your mortgage company.
Mention Considering Bankruptcy
Another thing to tell your lender is that you are considering bankruptcy. This is something your lender doesn't want because it stops any foreclosure proceedings for awhile. With the thought of bankruptcy, your lender might be more willing to accept your short sale proposal. But, do not use the bankruptcy as a threat - do not threaten. The lender will not like a threat at all. Remember, you want them to work with you on the best terms you can get.
Authorize Your Real Estate Agent To Work On Your Behalf
You will want to allow your real estate agent to speak and work on your behalf with your mortgage company. It is a good idea to let your agent do some of the negotiating for you. They know what they need to get the buyer's offer accepted and they are not emotionally attached to your home like you are. Make sure that you pay attention and informed of their conversations with your lender. You'll want to do this in writing - get a letter notarized - you may even get some sort of limited power of attorney drawn up so your agent can work on your behalf.
Gather Income, Asset, and Monthly Expense Information
Next you will want to gather all of your financial documents related to your income, bills and assets. You will need to send the lender your last 60 days of paystubs and several months worth of bank statements - from all of your accounts. You should also send along at least your last several years worth of W2's and/or tax returns. They will be looking thoroughly at what happened.
Summary Of What To Include In A Short Sale Request
Once you have all of this together, you'll want to send in your short sale request based on what your lender has asked for. Generally this will include the things we have already talked about:
- Your letter of explanation - hardship letter
- A letter from you requesting that they accept your short sale request and list out the sales price, your mortgage balance etc.
- All of your income, asset and monthly expense information and statements. Include a summary sheet explaining everything. Don't leave it up to them to figure it out. If you do, count on them not getting it right. This isn't the time to take a chance to sneak something through.
- The sales contract with the buyer of your home. Make sure to spell out any closing cost assistance that you are wanting to give them, etc.
- Qualification information about the buyer - some sort of pre-approval letter indicating what kind of loan - down payment etc. The lender needs to have a high level of confidence that you are actually going to be able to sell your home.
Remember, if they stop taking action against you because they are going to let you sell your home and you really don't have a good deal or request - it will probably be worse for you after they find it out.
Sending in a short sale and getting your request approved will take some time. There are a lot of them going through the system. So give yourself some time. Also, don't accept or demand a purchase settlement date for 30 days or less. This won't get the mortgage company to move any faster. You have to play by their rules. Give yourself at least 60 maybe even 90 days until the settlement date.
Keep this in the back of your mind about your proposal for short sale. Think about it from your lender's perspective. Ask the question: "why should we accept this short sale request?" If you stop and think about this question and keep it alive while your put your information together to give your lender you will most likely see a clearer path to getting what you want - out of danger of going into foreclosure.
