While you may now be desperate enough to go for a short sale, you're still seeking the same thing -- a buyer. Some homeowners would like to get a tentative OK from the lender before seeking a buyer, but this doesn't happen in most cases -- the lender won't tell you it will accept any less than what it is owed and also probably won't even discuss this until you're 60 or 90 days behind in your payments. Any lender is more likely to agree if a buyer is already in place and you have a legitimate, signed offer with a sizable deposit.
There are a few things you can do to find a buyer. You can go the "For sale by owner" route with a sign on your lawn and classified ads locally and online. Explain to anyone that responds that you are seeking a short sale arrangement.
Consider, however, a short sale is not a do-it-yourself project, and this is one time you should seriously consider getting a real estate agent who has a track record with short sales, foreclosures and bank-owned properties. Real estate agents often maintain a contact list of investors and buyers in the area. Ideally, you will want to find a buyer who has at least a basic familiarity with short sales or works with a broker who does.
In addition to writing up the hardship letter and documenting the property's shortcomings, you should do everything else in your power to help convince the lender that the property would be difficult to sell via normal channels. Gather up any repair receipts and/or estimates. Take pictures (or allow the buyer to do so) of any problems or defects. Allow the buyer and their broker/appraiser to access the property (inside and out) when necessary.
- In some cases, the lender may send you a 1099 tax form, which will list the "shortfall" (the amount the lender has forgiven) as income to the seller. Don't be alarmed: The Mortgage Forgiveness Debt Relief Act of 2007 gave short sellers a big tax break by changing the way the forgiven amount was viewed for tax purposes. Prior to passage of the act, that amount was considered as income for the borrower and was subject to tax. However, the new law removed that tax liability.
- If you have more than one mortgage or more than one lender, remember they all have to approve the short sale. Make sure your sales contract includes all lenders' approval in writing. Lenders holding second or third mortgages probably will get nothing if the property is foreclosed, so at least in a short sale they have a chance of recouping some of their investment.
- Some states allow deficiency judgments, in which a lender can pursue the borrower for any remaining balance of the loan. This usually only applies to cases where the home is sold at auction or as an REO, a real estate owned property, by the lender. In a typical short sale agreement, the lender agrees to waive this right. Make certain you're protected from this in the short-sale agreement.