What does the lender look for when they are considering whether to agree to do a short sale for a borrower. There are three main criteria:
- Insolvency: If the borrower is sitting on a pile of money that could be used to pay down the principle or pay back the arrears on the loan they will demand that be done before entertaining a short sale. Retirement accounts generally do not count toward this criteria. The lender will ask for financial documents to evaluate your situation including bank statements and tax returns.
- Financial hardship: Something has happened in your life which makes it impossible for you to pay back the loan under the terms of the loan contract. It might be loss of employment, employer cutting hours or pay, a medical issue in the family or something else. This should be described in a “hardship letter“.
- Monthly income shortfall: A lender wants to see why you cannot fit the monthly payments into your monthly budget. Most lenders have some form of a budget worksheet for the borrower to complete as part of the short sale packet which the attorney submits to the lender.
These and other documents go into the short sale packet. Most lenders require the following:
- Signed Third Party Authorization Letter
- Seller’s Financial Statement
- Typed Hardship Letter signed by Seller
- Four Most Recent Pay Stubs
- Two Most Recent Bank Statements
- Two Most Recent Federal Income Tax Returns and W-2 Forms
- Copy of Most Recent Mortgage Statement (for all mortgages)
- Copy of any other known liens associated with the property
- IRS Form 4605-T – Lets Lender Request Copy of your Tax Returns
- Dodd-Frank Certification (states you have not been found guilty of fraud in the last 10 years)
The process starts with sitting down with an attorney with experience in the short sale process. I offer a one hour free consultation to distressed homeowners. In that hour I review their unique situation and educate them about their options including loan modifications, deed in lieu , bankruptcy and the risks associated with allowing a home go to foreclosure. When the homeowner gets up from the table they are educated about their options and if they want to work with me I can put a team of experienced professionals around them to help them get back on track toward their overall financial goals.
The information posted on this blog is intended for educational purposes and does not create an attorney client relationship. Please call Mr. Schroeder if you own or want to own property in the seven southern counties of New Jersey. Mr. Schroeder holds a license to practice law and a real estate license in New Jersey. He also is licensed to practice law in the District of Columbia but does not engage in any real estate work in the District.