Obtaining
short sale approval from mortgage lenders is a lengthy and complex process. Borrowers are required to work with a loss mitigator who will assist them throughout the process of short selling. Mitigators are usually employed by mortgage lenders; however, borrowers can retain the services of an independent loss mitigator if desired.
Certain criteria must be met to qualify for
short sale approval. Unfortunately, there is no standard protocol at this time, but most mortgage lenders abide by the following short sale criteria:
1. Borrowers must owe more on their
mortgage note than the appraised value of their property. With today's declining real estate prices, this requirement is relatively easy to meet, particularly if you obtained a loan within the previous five years. Home values can be obtained by conducting research online. Two good sources include Realtor.com and Homes.com. Additionally, realtors can pull comparable sales reports for you. Comp reports are used to show the sale price of comparable homes in your area.
2. Borrowers must be 31 days delinquent on their mortgage note, but not entered into foreclosure.
3. Borrowers cannot have any accrued equity in their home.
4. Borrowers must prove financial hardships stemmed from unexpected unemployment, chronic health problems, death of a spouse, divorce, or other extenuating circumstances. Borrowers who became delinquent on their mortgage note because they took an exotic vacation or engaged in frivolous spending will not qualify for short sale approval.
5. Borrowers cannot own financial assets which could be used to cure mortgage arrearages or satisfy the balanced of the loan.
Mortgage lenders generally offer borrowers a variety of options to
prevent foreclosure before entering into short sale arrangements. The most common is loan modification. Banks can modify the loan a variety of ways. Some roll mortgage arrearages to the end of the loan and extend the payment terms. A few banks will temporarily suspend or reduce mortgage payments to help borrowers get back on track. Others require borrowers to cure all or part of mortgage arrearages before modifying a loan.
Individuals who do not qualify for loan modifications, but meet
short sale criteria will be required to submit a short sale packet. Although requirements vary by lender, most short sale packets require the following information:
1. Financial statement detailing income and expenses.
2. Short sale hardship letter explaining events which caused the borrower to become delinquent or prevents them from making future payments.
3. Banking and financial investment statements.
4. Current and previous years' tax returns.
5. Realtor listing agreement or signed sales contract.
6. Estimate settlement statement (HUD-1).
7. Proof of buyer's financing.
Borrowers will engage in numerous conversations with their assigned
loss mitigator. It is crucial to be truthful when submitting personal information and financial records. It is also crucial to be nice to the loss mitigator. These individuals can make or break your deal. Screaming, yelling, cursing and lying will certainly diminish any chance of obtaining short sale approval.
Entering into a short sale agreement is less damaging to your credit than
foreclosure. Short sales remain on your credit history for seven years, while foreclosure sticks around for ten years.
Prior to requesting short sale approval take time to become educated about the process and how it works. Enlist the help of professionals such as realtors, short sale specialists, real estate attorneys and
real estate investors.
Simon Volkov is a well-respected real estate investor and short sale specialist. He is the author of
Short Sale Hardship Letter eBook Course; a guide which helps borrowers improve their chance of obtaining short sale approval ten-fold. Simon offers an extensive short sale and real estate article library via his website at
Simon Volkov.
