The short sale process for sellers can be broken down into five simple steps:
- Identify the current situation
- Demonstrate provable financial hardship
- Enlist the services of a qualified agent
- Gather the appropriate documents
- Proceed to sell the house
The short sale process for sellers starts when they are officially made aware of their inherent lack of funds to cover their predetermined mortgage obligations. In other words, a homeowner’s impending inability to pay their principal and interest in full each month is a telltale sign that a short sale may be in order. It is worth noting, however, that short sales are the direct result of increasing hardships, and not a failure to make payments. That’s an important distinction to make, as short sales are voluntary; the homeowner will request a short sale if the burden of paying down their mortgage becomes too much. Those homeowners that actually miss payments will be subjected to foreclosure — an entirely different process, altogether.
It is true what they say: the first step is admitting there is a problem, and short sales are no exception. Homeowners that find it difficult to keep up with mortgage payments must admit as much if they are to be considered a candidate for a short sale. However, there’s more to it than admittance; they will have to actually prove their hardships. That’s where step two comes in: proving to the lender that the payments are too hard to keep up with.
To be considered for a short sale, homeowners must prove to their lenders —beyond the shadow of a doubt — that they can’t keep making payments at their current rate. Better yet, they need to come up with the appropriate financial documentation that suggests their current payments are incapable of continuing. It is up to the borrower to prove to their lender that they can’t keep making payments.
It should go without saying, but lenders aren’t overly fond of the idea of conducting a short sale, which begs the question: Why would lenders even entertain the short sale process? Why are they willing to let homeowners sell their homes for less than they owe on the mortgage? The answer is simple: it’s better to recoup at least some of their money from a short sale than to risk the homeowner falling into foreclosure.
Once the lender is convinced the homeowner can’t keep up with their payments, they may approve a short sale. When a short sale is approved, homeowners should consider hiring an agent who specializes in short sale transactions, as they will know how to navigate the process smoothly and efficiently. Provided they have done their job, the offers should come rolling in. However, short sales are anything but traditional. When homeowners receive an offer, they must submit it with certain documents to the lender to receive approval. “Each lender has specific document requirements for the short sale process once you have an offer, and your agent will communicate the process to you,” according to SF Gate.
If the lender accepts the request, the homeowner may proceed like a traditional sale; if not, more negotiations may be necessary. Either way, the homeowner will have to work with the lender on landing on a specific offer.