How to Submit a Short Sale Package to the Bank
Advice to Help Get Your Short Sale Approved
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, making BofA a pioneer. But many banks still prefer to receive documents the old-fashioned way, via fax machine.
But before you assume how you should send your docs, it's best just to ask before submitting.
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. 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. Banks are not stupid.
- 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 needs to tell the story about how the sellers got into their present situation, what they have done to find a solution and why there are no solutions apart from a short sale presently available. It must contain the loan number and be signed and dated.
- Authorization letter: 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. Every single 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.
- Last two tax returns: Your federal tax returns for the last two years are also required, signed and dated, 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.
- Last two W-2s: Your last two years' of W-2s will disclose your salary as reported by your employer to the IRS. If you're self-employed, you will probably need to send 1099s and a profit and loss statement.
- Last two payroll stubs: Regardless of how you are paid, whether it is monthly, weekly or bi-monthly, submit your last two payroll stubs. If you received a bonus or any other unusual pay increase, you may want to include a note that explains it.
- An Estimated HUD-1: The 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 estimated closing date. I use a closing date that is at least three months away. Each cost of sale is a separate line item on the HUD-1. Because the form was revamped in 2011 and can be complicated, some closers send a worksheet so the bank can better understand it.
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 should justify the sales price.
If the home needs repairs, include a minimum of three repair estimates. Realize, of course, that the bank will choose the lowest repair estimate.