Preparing for a Short Sale

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Madeleine Jones
September 9, 2016

A house, preparing a short saleCompleting a short sale requires thorough preparation and documentation. Executing a short sale in Nevada can take several months so it is important that everything is properly prepared so that the lender will approve the application.

Document the Hardship

Start by documenting the market value of the home. This can be determined through a recent appraisal of the property, tax records, etc. Typically, lenders will only approve a short sale based on market valuation alone when the value of the home has dropped by 20% or greater.

For a short sale in Nevada, it is also crucial to itemize unpaid mortgage balances, missed payments, penalties, interest accrual, etc. This shows the lender precisely how much is owed and the impact the debt is having on the borrower.

A lender may also approve a short sale if the mortgage is current. For example, if a borrower establishes that they have lost a job, suffered a serious medical event, divorce, bankruptcy, death, or other financial setback that makes maintaining the mortgage impractical.

Prepare Financial Information

The short sale application requires detailed preparation of an individual’s financial situation. In Nevada, most lenders will require the following be submitted with the hardship letter:

  • 2 years of tax returns
  • 2 years of W-2’s
  • Payroll stubs from the past month
  • 2 months of bank statements

This information shows the individual’s income flow and ability to maintain their payments. Lenders will not typically approve a short sale if this information shows that the borrower has sufficient income to cover the existing mortgage responsibility.

Hire an Experienced Team

Short sales are lengthy processes and require coordination between an individual’s short sale attorney and a real estate agent who is experienced in conducting short sale transactions. While many lenders prefer to accept a short sale rather than foreclosure, that does not mean they will approve every short sale request.

Indeed, lenders are more likely to approve a short sale when a deal can be negotiated with a qualified buyer that matches as closely as possible the home’s market value. This reduces the lender’s loss and helps ensure that the homebuyer will be able to effectively take over the mortgage payments.

The real estate agent and short sale attorney can also help prepare the seller for the tax consequences and impact to credit reports, savings, etc. that will occur after the sale is complete.