A short sale is a transaction in which a homeowner sells a property for less than what is owed, the lender takes a loss, and any unpaid balance is forgiven. For this to happen, a set of documents is needed.
- Purchase and sale agreement. This is the accepted offer. This document is evidence that, under a certain set of conditions, the owner is willing to transfer ownership of the property to the buyer. Of this set of conditions, purchase price and possession date are the main focus. The purchase and sale agreement needs to be well-executed. To be legally binding, it must be signed by all who claim ownership of the property.
- Hardship Letter. This is a personal letter, from the homeowner to the lender, explaining the reasons for being unable to continue paying the mortgage. This is a critical document. To be effective, it must clearly state the situation, show concern, and demonstrate that the homeowner is taking action for the problem to be resolved. It is best if this note is hand written and not very long.
- Homeowner’s financial statement. This is a worksheet presenting all income, assets and liabilities. The homeowner and all co-borrowers must be included.
- Latest two bank statements. If the homeowner has more than one account, all the statements must be presented.
- Latest two pay stubs. If the homeowner has more than one job, all the stubs must be shown. Unemployed homeowners must present the latest available. Self-employed individuals can provide a profit and loss report.
- Last two years tax returns. Often, homeowners in foreclosure have missed filing their taxes. In this case, present the latest available and write a personal note to the lender explaining the situation.
- Last two years W-2s. Employers provide this to employees and the IRS every year. Provide the latest available.
Supplemental Documents. In addition, if relevant and available, the following documents are very useful. In some instances, they are absolutely necessary.
- Death certificate
- Divorce decree
- Incarceration decree
- Bankruptcy discharge letter
- Relief from stay
- Proof of disability
- Insurance claims
- Police reports
- Court approvals
- Anything that may be useful
Additional Documents. Once in contact with the lender, these two additional documents will be needed.
- Listing agreement. Often lenders want to make sure that the property is listed or has been listed by an agent. This is a must for real estate agent commission allowance.
- HUD-1. This is the RESPA compliant settlement net sheet. RESPA stands for Real Estate Settlement Provisions Act. It shows who gets paid what, and how much. This document shows the main thing the lender wants to know: How much the lender will get.
These are the documents needed for a short sale to be negotiated. The more complete, the better. The degree of what is acceptable varies from lender to lender. Some lenders are more demanding than others. Have all these documents. The short sale will go a lot smoother.