How to Submit a Short Sale Package to the Bank
Everything You Need to Help Get Your Short Sale Approved
In the event that you find yourself considering a short sale on your home, your lender will ask you for something called a "short sale package." This package is basically a set of documents that you use to demonstrate your financial hardship. It's how you make your case to the bank for your short sale.
Back in the pre-recession days, short sale sellers and their agents were delivering a short sale package to the bank via FedEx or some other overnight service. That's because banks would routinely lose or accidentally shred a faxed short sale package—possibly a result of them outsourcing this part of the short sale process to overseas contractors. It was a nightmare, to say the least.
As a result, some banks turned to online software management. In a Bank of America short sale, for example, all offers are uploaded online, with the exception of certain types of HAFA short sales. But many banks still prefer to receive documents the old-fashioned way, via fax machine.
Before you assume how you should send your documents, it's best to ask your lender.
Documents Required for a Short Sale Package
A few banks have streamlined the process for submitting a short sale package. They might send you their documents with a bank logo, but it's not always necessary to complete them, so verify first whether you can submit your own documents or file online. The following is a list of documents generally required by all banks for short sale submission.
An Executed Listing Agreement
The bank wants to see when the property came on the market, the name of the brokerage that listed it, the term of the listing and the amount of the commission. It's generally not a good idea to send an offer that is considerably lower than the list price if the home has been the market for only a few days.
Fully Executed Purchase Contract
Not every bank will accept a purchase contract that has been signed electronically. You might need "wet" signatures on the contract, as an incomplete contract can cause delays. Make sure the property address is noted in its entirety, every spot to initial has an initial and the contract is dated and signed by all parties, including the real estate agents, if necessary.
Seller's Hardship Letter
The hardship letter is perhaps the most important part of the short sale package. It must tell the story about how you got into your present situation, what you have done to find a solution, and why a short sale is the best option at the moment. It must contain the loan number and be signed and dated.
Some agents send the authorization letter with the short sale package and some prefer to submit the letter upon listing inception. This letter is signed by the sellers and authorizes the bank to speak with the listing agent. Without an authorization letter, the real estate agent can't negotiate a short sale.
Last Two Bank Statements
Your two most recent bank statements, for every bank account, are required for submission. Be sure to include every page. If there are large deposits or withdrawals on those statements, you may want to include a separate explanation because the processor will most likely wonder about it. Answer the question before it's asked.
Tax Returns and Wage Documentation
Your federal tax returns for the last two years are also required, signed and dated with every schedule and every single page. If you haven't filed your tax returns for the past two years, you will need to include a letter of explanation and extensions. You will probably also need to submit your last two years' worth of W-2s (1099s if you're self-employed), last two pay stubs, and possibly other documents supporting your wages. If you received a bonus or any other unusual pay increase, you may want to include a note that explains it.
A Closing Disclosure
The Closing Disclosure (formerly HUD-1) is an estimated closing statement that is generally prepared by a closer or an escrow officer. It contains the property address, sellers' names, buyers' names, and the estimated closing date. Each cost of sale is listed separately.
Additional Documents for Your Short Sale Package
If you have reason to believe the sales price might be rejected or countered by the bank, you may want to ask your real estate agent to include a comparable market analysis with your short sale package. The CMA compares active, pending, sold, and expired listings to help you justify the sales price.
If the home needs repairs, include a minimum of three repair estimates for each job that's needed. Realize, of course, that the bank will choose the lowest repair estimate.
There's no way to avoid gathering a lot of documents for a short sale. Find out everything you'll need before you submit, so you don't face costly delays when the bank asks you for more information.