Short Sales and Foreclosures…Sellers Must Document…

    Potential sellers who do not have a financial hardship sometimes change their mind when they realize the types of paperwork the bank needs in order to have a successful short sale. Much of this documentation is required to justify to the lender(s)  why selling “short” is the only alternative.  People who have assets which could be used to pay the mortgage note, but just want to “walk”, may be denied a short sale or face a deficiency judgment if a short sale is successful.

    In addition to the hardship letter which details why the seller cannot pay the mortgage, the bank requires an authorization letter from the seller authorizing the lender to speak with the Realtor or attorney.  The Realtor then must assemble the “package” for the lender which includes; income tax returns, pay stubs, bank statements including savings and retirement accounts, copies of bills, a list of assets and liabilitieis, monthly expenditures, and documentation of other unusual expenses.  Other information may be requested by the lender to support the case for short sale. 

      Up to date information must be obtained about homeowner’s dues, other special assessments, any other liens on the property, and property tax status.  Sometimes the seller does not have current information about these items and the Realtor must track down this information.

   Working  with a reputable agent is paramount.   The sellers’ information requested is private and confidential, and contains all of the necessary ingredients fora successful identity theft; another reason that propels “foreclosure scammers”.

    All of this information is considered by the lender(s) when determining if an offer on a property will be accepted.  The lender(S) needs to know if the seller can contribute any amount of funds to the sale of the property.  The seller should determine if they are in a “deficiency judgment” state, or “non deficiency judgement” state.  A deficiency judgement permits the lender(s) to collect from the sellers the amount of a specified “deficiency” after closing on the house.  If the property is a second home, often a deficiency judgment will be granted.  Sometimes a judgment will be granted to the lender holding a HELOC (Home Equity Line of Credit) if the funds were not used for the home, such as improvement. 

    Working with a competent Realtor and/or attorney and exploring options is one of the best things an “underwater” seller can do to get answers and help himself/herself.  A Certified Public Accountant can also be included in the team to discuss income tax consequences of any action. 

    Going to a short sale is a far better option for the seller than foreclosure.  Unfortunately many people who have their homes sold in foreclosure never asked for professional help and as a result, will suffer the consequences of credit deterioration for a longer period of time. 

    If you or anyone you know is having problems, consult a Realtor, an attorney, or a CPA as soon as possible. The more time to solve the problem, the better for the seller.  If you need help, contact me at, and I can provide you with the name(s) of someone in your area who can help you.

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