What is the Short Sale Process?

The short sale process in regards to property settlement includes having the property evaluated and listed by an experienced real estate agent, and working with the lender to forgive any remaining debt. The property itself must be evaluated to determine its value in comparison with the amount still owed. The homeowner will then be asked to provide documentation detailing the reasons for the short sale and proving his inability to repay the debt he has incurred. This can be accomplished through bank statements, pay check stubs, and personal letters of explanation. This process is best handled by real estate agents and lawyers who have successfully negotiated similar settlements, and should generally not be attempted by the homeowner alone.

A short sale may occur when a property owner is unable to continue making payments to a lender on their loan and is unable to sell the property for a price totaling at least the remaining debt. This can occur when a homeowner owes more on his house than its current market value. The property is then sold for an amount less than that which is owed on the home or land. The difference in debt between the price at which the property was sold, and that which was originally owed by the initial purchaser, is then typically forgiven by the lender. This allows both the lender and the borrower to avoid foreclosure, and the lender typically receives more money from the sale than if the alternative were to occur.

The first step in the short sale process is to receive a fair and accurate appraisal of the property's current value. This evaluation is known as a comparative market analysis and can be performed by a real estate agent with short selling experience who is also willing to list the home. The agent or homeowner may choose to hire an outside appraiser for a second consultation, though this typically involves an additional fee for the visit. The market value is generally determined by comparing the home to the price other properties of similar age and size have recently sold for in the area.

The second step is to contact the lender that holds the loan on the property up for sale. The homeowner should discuss the situation in detail with the lending agency and make clear to them that he is unable to afford the monthly payments on the property. He can make the bank or agency aware at that time the amount at which the home will be priced to complete the short sale process. Not all lenders are willing to forgive debt for this kind of transaction, but many are willing to work through the situation with both the homeowner and their real estate representative. The bank or lending agency may at this time request a letter of authorization which allows them to discuss the loan in question with the real estate agent listing the property and any lawyers the homeowner may have hired on his behalf to oversee his finances.

The homeowner may be asked to create a preliminary net sheet and a letter of hardship to authorize the short sale process. The net sheet will list all costs associated with the sale, including the amount of the original loan, the price at which the house is expected to sell, and any associated fees charged by real estate agents and lawyers. In a short sale, the bottom line number will have a negative value. The letter of hardship details all aspects of the situation, including the reason the homeowner is unable to continue making his payments. This type of document appeals to the mercy of the lender, and should include all extraneous circumstances, such as the loss of a job, medical difficulties, and any hospitalizations.

During the short sale process, the homeowner should also be prepared to provide the lender with bank statements, a list of all existing assets, such as additional properties, and a purchase agreement. These financial records are used to prove that the homeowner indeed cannot repay the amount of the existing loan and is in danger of future foreclosure without intervention. Once the property has been sold, a purchase agreement showing the sale price can be sent to the bank or agency. The lender typically then makes a final decision on whether to forgive any remaining debt, and whether to report the incident to a credit rating agency.