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A short sale is described as a lender of record agrees to discount their pay off to accommodate a sell when the buyer or seller has experienced hardship. The value is proven to be less than the amount needed to pay off all the loans, encumbrances, and real estate and selling costs or the loan is in default.

What Are The Steps In A Short Sale?
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Short sales are not necessarily complicated but do require some work on your part and your agent's part if one is involved.

• Figure out the true value of your property. Many times a real estate agent can provide a ?market analysis? and give you a good idea of what your home might sell for. You can also use Zillow or other real estate related sites to determine the rough value of your home. If the market is moving down keep in mind that your homes value may be moving down as well and estimated valuations may be valid for only a short time.

   

   

• You also need to calculate your estimated closing costs. Items such as a title report, escrow, appraisal, attorney fees, agent commissions, unpaid property taxes etc. may add up to a substantial amount of money.

   

   

• You'll need to know how much you owe on your property. Include all loans on the property in your calculation.

   

   

• Calculate your equity. Normally the value of your home is more than the total of the loans and closing costs. If your closing cost estimate plus your loan amounts are higher than the value of your property then a short sale is a possibility.

   

   

• You?ll need to contact your lender and explain your situation. Be sure you talk to someone who has the authority to make the required decisions. Usually lenders have a ?loss mitigation department? that you can contact. Lenders are under no obligation to accept a short sale but many times it is in their best interests to do so. Some lenders will not consider a short sale until you have missed a payment or two. Some will not accept short sales at all. You?ll need to know where your lender stands with regard to short sales so contact them as soon as possible.

   

   

• Consider your tax obligations! Do not underestimate this! Many times there can be a substantial tax obligation after a short sale has occurred. Be sure to talk with an accountant or tax attorney to figure out how much money you may owe the IRS if you proceed with a short sale.

   

   

• Find a buyer and sell your property. The lender will still have to approve the buyer?s offer but once they do you can sell your property.

The Short Sale Package
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All of the documentation needed to start a short sale is commonly called a "Short Sale Package" and is usually submitted by the investor interested in the property, the agent representing the seller, or the seller of the property. The package usually includes the following items:

Sample Short Sale Package (items may vary depending upon the lender):

• Cover Letter
• Authorization to Release Information
• Sellers Hardship Letter
• Seller’s Financial information
• 2 years w2’s
• 2 months pay stubs
• 2 months bank statements
• Supporting Hardship Info – HOA liens, medical/disability statements etc.
• Repair Estimate for the property
• Comparable sales for the property
• Contract
• Net Sheet
• First mortgage holder may ask for a payoff amount from the 2nd
• Second mortgage holder may ask for a payoff amount from the 1st
• Lender may ask for an Initial Title Report
• FHA and VA may have their own forms and special requirements as well

The Short Sale Hardship Letter
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The Hardship Letter is usually part of the short sale package and is written by the seller or their representative. It is used to explain to the lender the reasons for the borrower's need for a short sale. Reasons such as divorce, job loss, medical issues, etc. can and should be included. Usually just a one page letter with the pertinent information will suffice.

A simple letter in the following form should suffice:

Date

Lender Name
Address
Loan Number

Dear Sir/Maam,

{In this section explain your hardship and why you must utilize a short sale - some example hardship reasons are listed below}

• Unemployment
• Reduced Income
• Divorce
• Separation
• Medical Bills
• Too Much Debt
• Death of my Spouse
• Death of a family member
• Payment Increase
• Business Failure
• Job Relocation
• Illness
• Damage to Property
• Military Service
• Incarceration
• Other (Please Specify)

Borrower’s Signature

Date

Co-Borrower’s Signature

Date

The Mortgage Relief Act
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Here is the press relase from one of the Senators that is sponsoring the Mortgage Relief Act that may provide some relief for homeowners that are in a short sale position and may owe the IRS taxes on debt relief.

U.S. Senator Debbie Stabenow (D-MI) today announced that President Bush will include the Mortgage Relief Act in his initiative to assist homeowners damaged by troubled mortgages. The Mortgage Relief Act, introduced in May by Senator Stabenow, would change current law that forces individuals to pay an income tax when they have had a part of their mortgage loan forgiven or have been forced to foreclose because of their inability to pay their mortgage. The bill is also sponsored by Senator Carl Levin (D-MI), George Voinovich (R-OH) and John Kerry (D-MA).

“People in Michigan and across America are suffering, and it is wrong to unfairly tax families when they are faced with the prospect of losing their home,” said Stabenow. “I look forward to working with the President and my colleagues to prevent additional, unfair economic hardship in the lives of those who find themselves in truly unfortunate circumstances. We need to make it easier, not harder, for Americans to keep their homes. ”

Declining home prices and rising foreclosure rates have left some families having to sell their homes for less than they paid for them, and sometimes for less than the outstanding debt. The IRS currently taxes any loan forgiveness as “income”. The Mortgage Relief Act will relieve families of a tax burden when their lender forgives part of the mortgage on a principal residence.

Under current law there are a number of situations in which homeowners are unfairly taxed when trying to responsibly address their inability to meet their mortgage. For instance, if a family owns a home with a $100,000 mortgage and can’t afford to make their payments the bank can step in and refinance the house at a lower value to better reflect the decreased market value. Under current law, if the bank values the home at $80,000 the family would have to pay taxes on the $20,000 difference between the new and the original mortgages.

In addition, the President’s plan will urge Congress to reform current laws to make it easier for the Federal Housing Administration to offer aid to mortgage holders with subprime mortgages. His proposal will also include an increased effort to enforce predatory lending laws and strengthen lending practices.

From 2005 to 2006, the Detroit metropolitan area had the highest percentage of households in foreclosure in the 150 largest metropolitan areas, with an average of more than 10,000 foreclosures in each quarter. The foreclosures affected 1 out of every 21 households, nearly five times the national average. Over the first quarter of 2007, Michigan had over 29,000 foreclosures and Detroit was on pace to record 11,000 for that same time period. The Mortgage Relief Act, is companion legislation to H.R. 1876 introduced in the House by Rep. Rob Andrews (D-NJ) and Ron Lewis (R-KY).

Pre-foreclosure Period 
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Lis Pendens) against the borrower. The lender notifies the borrower and any other affected parties in person or in some cases by mail or publication. If the borrower does not respond to the court action within a specified amount of time, the county clerk can find the borrower in default and the lender can ask the court to make a final ruling. If the court rules against the borrower, the ruling will include the total amount owed to the lender and the foreclosure sale date.

Notice of Sale / Auction
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A foreclosure in Florida begins when a lender files court action and records a notice of a pending lawsuit (

The lender is not required by state law to notify the borrower before initiating the foreclosure process, but individual mortgages or deeds of trust might call for this. The borrower can stop the foreclosure up until the date of the sale by paying the total amount owed to the lender.