Listing Your Home as a Short Sale

avatarthumbnail.jpgUnfortunately, the question of what a seller needs to do to list and sell a home as a short sale has come up fairly often over the past year and especially over the last couple of months.

On a short sale, a home is worth less than the amount of a mortgage. The sale only will go through if the bank agrees to write off the difference between the two amounts.

Before considering a short sale, get with your accountant to see what the tax ramifications may be … in all cases you will receive a 1099 for the difference between what your lender was owed and what they accepted. In some cases this may not be taxable and in other cases it might – an accountant can tell you for certain.

Beyond that, the process for qualifying for a short sale is like qualifying for a loan but in reverse. In essence, you’re trying to convince the bank you no longer qualify. To do this you need many of the same documents you needed when you applied for the loan:

  • Two months bank statements
  • Two months pay stubs
  • Most recent tax returns
  • Income/loss worksheet

In addition, you’ll need to provide a hardship letter explaining why you can’t pay the mortgage any longer (short sales usually aren’t considered until you’re delinquent on a loan but there are exceptions). You’ll also need to sign a loan authorization that will allow me (or whomever your agent is) to speak to the bank about your loan and negotiate on your behalf.

Once we receive an offer I’ll be sending that to the lender along with a settlement statement (commonly known as a HUD-1) that shows the lender what their net proceeds will be.

Unfortunately, on a short sale, the one requirement universal to all lenders is that you as the seller do not receive any proceeds – not a penny. Odds also are long of getting an approval – even today, lenders are reticent to accept a short sale agreement.

So why go the short sale route? In short, it’s slightly better on your credit report than an outright foreclosure. Not much better but at least a little.

Have more specific questions? You know how to reach me.

[tags]Phoenix real estate[/tags]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.