Cover story: Short sale a long, drawn-out process

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The paperwork comprises three months of bank records, the last two months of pay stubs, the last two years of tax forms, a letter of hardship and an explanation of the need to relocate, an authorization letter that allows a Realtor to be the negotiator, as well as three sold comparables and three comparables of similar properties currently on the market. Once all the paperwork is in, the next step is to submit a buyer’s offer to the bank.

“If it’s sat for three months or so, you need to resubmit all the paperwork because it must all be up to date,” Ms. Corley said.

Mr. Campot pointed out, however, that some banks won’t even talk to homeowners about a short sale until they already have a buyer’s offer in hand.

“It might make more sense to first talk to a Realtor who specializes in short sales and get the house on the market and have an offer to take to the bank before submitting all of the paperwork,” he said.

Katie Wethman, a Realtor with the Wethman Group at Keller Williams Realty in McLean, pointed out that another way to speed the process is to comply with all requests from the bank.

“When they tell you they didn’t receive a piece of documentation you sent, just send it again,” she said. “They have a pile of work to do, and if you decide to take a stand and make them do any extra work, they’re just going to move on to the next one on the pile.”

For many short-sale sellers, one of the hardest parts of the process is parting with assets to help pay down the shortfall, Mr. Campot said. “So if you have $50,000 in life savings, the bank wants that to go into the mortgage,” he said.

Perhaps the biggest misperception is that a seller must be behind two or three mortgage payments before the bank will allow a short sale, Ms. Corley said.

“That is a myth. You only have to prove hardship,” she said. “You’ll hurt your credit rating if you purposely skip your mortgage payments.”

In general, a short sale can hurt an individual’s credit rating by 50 to 100 points, Ms. Corley said.

“But if the wording in the approval letter [from the bank accepting the offer] says that the loan is satisfied in full, you won’t take that hit,” she said. “It’s a good idea to consult with an accountant to make sure that the wording is correct and that the debt is forgiven; otherwise, the bank will try to collect the difference.”

Mr. Campot added that it’s also a good idea for sellers to consult an accountant about the tax repercussions of a short sale.

“In some cases, they can be severe,” he said. “If you can swing it, it’s often better to rent [the home out] than do a short sale.”

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