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A short sale package is a term used for documents that are submitted to a mortgage lender by a homeowner, seeking the lender’s authorization to do a short sale. A short sale occurs when a home is sold for less than what is currently owed on the loan and the seller is also unable to pay the difference.
Homeowners typically choose to pursue a short sale when they are no longer able to make the mortgage payments, but do not want the home to go into foreclosure. A foreclosure often negatively impacts an individual’s credit rating; so many people will seek to avoid foreclosure if at all possible. It should be noted that a short sale will also negatively impact an individual’s credit rating. However, many people believe that a short sale will not be considered as negatively as a foreclosure.
A short sale generally causes a financial loss to the lender; therefore the lender must provide authorization for a short sale to occur. In a sense, a short sale package is a homeowner's “sales pitch” to convince the lender to approve a short sale. The short sale package is composed of documents that a lender requires from a homeowner who is seeking a sort sale. The bank will want to know the details and specifics of a seller’s situation to determine whether to approve a short sale.
It is very important for the seller to make a compelling argument that a short sale is not only necessary but is in the best interest of the lender. Foreclosing on a property and then reselling it is a costly and time-consuming process for a bank. Therefore, the homeowner who is able to make a case that approving a short sale is a better option than foreclosing on the property stands a better chance of having the short sale approved.
A short sale package generally includes these documents:
• Cover Letter.
• Authorization to Release Information. This gives the bank permission to speak with a seller’s representative.
• Hardship Letter. The hardship letter may be the one of the most important documents on a short sale package, as it is the homeowner’s explanation to the bank of why he is unable to make payments on the mortgage and why he will be unable to completely pay off the mortgage.
• Documents to support hardship claims. This may include medical bills, disability statements, and job loss certification.
• Financial information. This includes a seller’s paystubs, tax information, bank statements, and investment statements. The bank will use this information to verify that the seller is indeed in financial distress.
• Listing of sales for comparable homes in the area.
• Detailed listing and cost estimates for any needed home repairs.
A homeowner interested in doing a short sale should take the time to understand the process. It is very important to know and understand exactly what the bank requires. Any omission of documents can delay the approval process, to the detriment of a homeowner seeking to sell a home before a foreclosure begins.
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