The Short Sale Package: Documents Claremont Sellers Need

Of everything that happens in a short sale, the paperwork is the part a seller actually controls. The valuation belongs to the lender. The approval belongs to an investor and, often, to a junior lienholder. The buyer belongs to the market. The FILE belongs to you — and a complete, coherent, internally consistent file is the difference between a review that moves and a review that stalls at the bottom of a queue behind other people's missing bank statements.

This article walks through what a servicer's short-sale package normally contains, what each document is actually being used for, and how to assemble it calmly. It deepens the short-sale guide and assumes the sequence laid out in the step-by-step process.

Two things before anything else, and they hold on every page in this cluster. A HUD-APPROVED HOUSING COUNSELOR is free, is not selling anything, and is the right first call — before an agent, before a lawyer, before any decision is made. And nobody legitimate charges a homeowner an upfront fee for foreclosure or short-sale help. If someone asks for money in advance to prepare your package or to talk to your bank for you, that is the end of the conversation. This article is general information; a real estate attorney governs the legal questions and a CPA governs the tax questions.

What the package is for

It helps to know what the reviewer on the other end is trying to establish, because every document maps to one of three questions.

FIRST: is the hardship real and is it ongoing? Lenders approve short sales for demonstrated inability, not for preference, and the financial documents exist to test that claim against the numbers rather than against the letter. The hardship test covers that ground in detail.

SECOND: is the shortfall genuine? The lender wants evidence that the home is honestly worth less than the debt plus the cost of selling it, which is why the offer, the settlement statement and the listing history all travel with the file.

THIRD: is the transaction clean? Arm's-length certifications, disclosures and the authorization form exist so the lender can satisfy itself that nobody is arranging a discounted sale to a friend and a quiet buy-back later.

A document that does not answer one of those questions is usually not being asked for.

The financial half

Servicers differ, and the only authoritative list is the one your servicer publishes for your loan. That said, the financial half of the package is broadly stable across lenders.

THE HARDSHIP LETTER. A plain, dated, first-person account of what changed and why the payment is no longer sustainable. It should be short, specific and free of both drama and euphemism. It should also be consistent with everything else in the file — a letter describing a job loss beside bank statements showing steady deposits reads as a contradiction, and contradictions are what send a file back for a second look.

A FINANCIAL WORKSHEET. Most servicers use their own form: income, expenses, assets, liabilities. Fill it in accurately rather than pessimistically. Overstating the difficulty is a temptation that backfires, because the supporting documents are attached to the same file.

SUPPORTING PROOF. Recent pay stubs or, for the self-employed, a profit-and-loss statement; recent bank statements for every account; recent tax returns. If a source of income ended, evidence that it ended tends to be more persuasive than a description of it ending.

A SIGNED AUTHORIZATION. This is the form that lets your agent, and your attorney if you have one, actually speak to the servicer about your loan. It is small, it is routine, and files stall for weeks without it because nobody on the lender's side is permitted to talk to anyone.

The transaction half

The second half of the package concerns the sale itself, and much of it is assembled by your agent rather than by you.

THE PURCHASE AGREEMENT and its addenda, including the short-sale addendum that makes the whole contract contingent on lender approval. Buyers who do not understand that contingency are buyers who leave; the offer-writing guide is written for the other side of that problem.

AN ESTIMATED SETTLEMENT STATEMENT. This is the arithmetic the approval actually turns on — what the sale produces, what comes off the top, and what reaches the lender. It gets revised as the deal moves, and each revision generally goes back into the file.

PAYOFF INFORMATION FOR EVERY LIEN. Not just the first mortgage: the second, the home equity line, any recorded judgment, any tax lien, and any association debt. A lien nobody costed early is the classic late surprise, which is why junior liens get their own article and why association balances are worth confirming in writing.

LISTING HISTORY AND MARKETING EVIDENCE. Days on market, price changes, showing activity, other offers received. This is the file's demonstration that the price is what the market said, not what the seller and buyer agreed between themselves.

ARM'S-LENGTH AND OCCUPANCY CERTIFICATIONS. Signed by both sides, these state that the parties are unrelated and that no side agreement exists. They are taken seriously and they are enforceable.

Assembling it without losing your footing

Start a single folder — paper or digital, it does not matter — and keep everything in it, including copies of what you send and the date you sent it. Servicers lose documents. A seller who can resend an identical copy the same afternoon keeps the review moving; a seller reconstructing the file from memory does not.

Expect updates. Pay stubs and bank statements go stale during a review that runs across months, and requests for refreshed copies are ordinary rather than ominous. Answer them in days.

Do not sign anything you have not read, and do not sign anything blank. Do not transfer the deed to anyone who offers to take the problem off your hands, and do not send payments to any party other than your servicer without your attorney's blessing. Those two moves are the mechanics of most foreclosure-rescue fraud.

Finally, keep the alternatives genuinely open while the package comes together. Reinstatement, a loan modification, a forbearance plan, or an ordinary sale with equity intact may all be better answers than a short sale, and several of them are faster. Nobody can promise that a short sale will be approved, that it will finish by a particular date, or that any specific outcome follows for your credit or your tax return. What can be said is that a complete file is treated better than an incomplete one, everywhere, every time.

When you are ready to keep reading, the short-sale guide is the map, and who actually approves the file explains where it goes after you send it.

Anthony Grynchal has been licensed in California since November 2009.