Phase 1: Short Sales


A “short sale” exists when a seller wants to sell his property but will not realize sufficient proceeds to pay the mortgages which exist on the property. It was historically difficult to convince lenders to allow such a sale to proceed.  However, in the current economic climate we are seeing less resistance on the part of lenders to consider such an action.  With the proper preparation and documentation, it is now possible to convince a lender, when necessary, to allow the sale to proceed without paying off the entire loan and without requiring the seller to sign a note for any additional sums left outstanding after the closing.  The lender will issue a letter indicating it will satisfy the mortgage of record upon receipt of a dollar amount which the lender specifies.


Your client must discover from the lender what actions the lender will take concerning his credit and also what tax consequences, if any, there will be as a result of the forgiveness of a part of the mortgage debt.


If you represent a seller in such a situation or you are a buyer considering such a purchase, be aware that it takes approximately two to three months for the approval by most lenders so start the process early and allow enough time when you select a closing date on your agreement of sale.


Once you have an agreement of sale the seller should make a request of his lender or lenders with the following documentation:

  • The agreement of sale
  • A preliminary HUD 1 which indicates to the lender the amount of proceeds you believe the lender will realize from the sale
  • A hardship letter signed by the seller indicating why he cannot pay the full balance owed on the mortgage
  • The sellers’ two most recent paystubs
  • Last W-2 and 1040 for the seller with all schedules attached.  If filed jointly, there must be two years of joint taxes or if filed individually, both borrowers’ tax returns
  • The buyer’s prequalification letter from a mortgage company. If this is a cash transaction, a letter from the buyer’s bank showing sufficient funds available to purchase the home in question.
  • Seller should also be prepared to present bank statements for the last two months.  If the seller is self-employed, this will be a requirement.
  • A copy of the MLS Listing page with photographs and history
  • A Third Party Authorization Letter to the lender which must include the account number, the date, the property address, to be signed by all parties on the account. This Authorization will state the name of the individual and firm that the seller authorizes to act on his behalf.
  • Real Estate Tax Certifications indicating what the taxes are and whether or not the taxes are current along with an accounting of any tax money owed.
  • Water and sewer accounts are to be verified and if delinquent, an accounting of what is owed.
  • Liens or judgments of record.
  • Delinquent association dues, if any.


We utilize a Short Sale Addendum to Agreement of Sale and a separate Notification to Buyer of a Potential Short Sale.