How to Convince the Bank to Agree to a Short Sale
If you are like many homeowners on the brink of foreclosure, you may have come to the conclusion that a short sale is the best alternative. But if you are “underwater” on your home, you need the bank’s permission before you sell. That’s because a market value offer will net you less than you need to pay off your mortgage, and the bank must agree to accept less than the balance on your loan.
Banks are sometimes reluctant to accept a short sale. However, if prices are falling, your financial difficulties are expected to be long term and you do not have much in the way of assets, they may decide to allow you to sell with the proper approach. In fact many banks will encourage homeowners to short sell in order to avoid foreclosure depending on the situation at hand.
Why Do a Short Sale
In a short sale you walk away from the mortgage debt and the bank takes the loss. You may have looked at refinancing, which requires some equity in your property. If you are underwater, there is no equity. Any repayment agreement to make up missed mortgage payments will put you back in the same position, and a loan modification may require you to pay much more for your house than it is actually worth. In a short sale, you stay in control of the timeline, deal with a real estate agent as in a traditional sale and avoid a foreclosure that can have dire consequences for years to come.
Ten frequently asked questions about short sales
Tips for Convincing the Bank
Before you go to the bank with a short sale offer, here are some things to keep in mind.
- Deal with the right person: You must determine that the servicer you receive monthly statements from is still servicing your mortgage, since mortgages are sold all the time. If it does, make sure you are dealing with the right short sale negotiator.
- Provide complete documentation: Give the bank everything they ask for, even if they ask for the same thing again. Label each document to avoid confusion.
- Determine if the bank will report the short sale correctly: Before you sign on the dotted line, find out if the bank will report the sale so you are not responsible for the deficiency balance on the amount you owed but did not pay.
- Get the help you need: Not every real estate agent is experienced with short sales. If you want to convince the bank and close the sale before the bank starts foreclosure proceedings, you will benefit from professional guidance from a pre-foreclosure specialist with a proven track record.
Submit a Short Sale Package
The short sale package is your opportunity to convince the bank that accepting your short sale is the best option – for the bank. Your agent should be an experienced short sale negotiator who can act as a liaison and speak to the bank on your behalf. You might be able to use the bank’s software to upload your information online.
- The Listing: Include the listing agreement for your house with the list price, the term of the listing, the broker and the commission.
- The Offer: Show the bank the offer to purchase your house, signed, dated and completed.
- A CMA: The Comparative Market Analysis will show how much homes in your neighborhood have been selling for recently. It will also show market trends.
- Buyer Qualifications: Provide evidence that the buyer is committed to the sale by showing a bank prequalification letter, a substantial down payment and a bank account with enough money to cover the sale, minus the mortgage.
- Your Hardship Letter: The hardship letter is your opportunity to explain why you are in this financial bind and convince the bank to accept less than you owe. Detail the steps you have taken to resolve the situation and tell the bank if the short sale will keep you out of bankruptcy. Tell the bank if a wage earner is ill or died, if you lost your job or if you are in the midst of a divorce. If you are a senior citizen, mention it.
- Recent Bank Statements: Include the two most recent bank account statements for every bank account. Be sure to explain an unusually large deposits or withdrawals.
- Your Tax Returns: The bank will want to see the last two federal tax returns. Make sure they are dated and signed.
- Your Proof of Income: You will need to provide your last two payroll stubs and W-2 forms if you are employed. If you are self-employed, provide your 1099 forms.
- Balance Sheet: Your balance sheet detailing your monthly expenses and your monthly income will clearly show the bank why you are experiencing difficulty making your mortgage payments.
In addition to the information listed above, the bank will require you to sign an Arm’s Length Affidavit declaring that you and the buyer have no prior relationship. The Arm’s Length Affidavit is intended to prevent fraud. The bank will also want to see the estimated closing costs associated with your short sale on the HUD-1 form. If you think it will be beneficial, include a worksheet with the form to explain the entries.
Work with an Experienced Short Sale Listing Agent
Your short sale listing agent can act as your liaison and represent you in negotiating with the bank. Include a letter authorizing the agent to speak to the bank directly, and make sure the letter is signed by all owners of the property.
Tip for Closing the Short Sale
While you may have to wait a while for the bank to approve your short sale, once they do they may allow just a couple of weeks for the closing. Ask your agent about when to have your buyers start the loan process.
Getting the Help You Need for a Successful Short Sale
Experienced Realty Warehouse representatives can guide you through the short sale process. We have a proven track record of helping thousands of homeowners get the best results from their bank. Our representatives specialize in helping homeowners avoid foreclosure on Long Island and in the five boroughs of New York City by assisting homeowners weigh their options and find the best alternatives to foreclosure. Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. You can count on us to listen to your specific situation, offer the advice you need and provide effective solutions in a stressful situation.
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This blog is for informational purposes only, subject to change.