November 19th, 2010 10:50 PM

A short sale occurs when a homeowner who is experiencing a financial hardship sells a home for less than the amount due on the mortgage with all the proceeds going to the lender.  A short sale can offer an appealing alternative to a foreclosure, but that does not mean that it's a easy process to endure.  Here's an overview of what a homeowner should do when considering selling short.

1. Talk to people:  After enduring a financial hardship and finding out that your home is underwater, your first steps should be to talk to three key parties: a CPA, a real estate attorney and a qualified real estate agent. Each state has its own laws regarding the lender's ability to come after the borrower for a deficiency after the sale or foreclosure, so it is highly recommended that homeowners consult with these three parties to confidently go forward with the short sale or to learn early on whether or not you should go another route altogether.  In some cases, it might be better to just go with a foreclosure or bankruptcy filing

2. Find the right agent:  Choose the best real estate agent available.  You may wish to search for a Certified Distressed Property Expert (CDPE) or a National Association of Realtors Short Sale Specialist.  Ask questions like, "How many short sale listings have you successfully completed?"  "How many have you lost to foreclosure?"  Get names and phone numbers so you can call the agent's past clients.  The short-sale process lives and dies with the listing agent.

3. Find the true value of your home:  Before embarking on the short sale process, a homeowner should verify their home's value. This can be done in several ways.  You can compare your home with the value of similar, neighboring homes for sale.  You can also look to your real estate broker to give you an estimate.  A third option is to get an estimate from an independent appraiser.  Search the Appraisal Institute for a qualified professional. 

4. List the home at the right price: The price that the home is listed at is a key step in the short sale process. It should be slightly above market value and lowered at pre-determined intervals until an offer is received. This will demonstrate to your bank that you tried your best to get them the most for your home. Not only do you need an attractive sales price to entice a buyer to go through the trials inherent in the short sale process, but you need to satisfy the bank's need to get the highest amount possible for the house.

5. Get your package together: Once an offer is received, it's time to start building your short-sale package. Your lender will require a number of documents, including a hardship letter, two years of tax returns, your last two pay stubs and last two bank statements. It is essential that all required documents are included in the package in order to avoid any delays.

6. Wait: It is all about patience, a key part of the short-sale process. It could take about 30 to 45 days for the lender to get your short-sale package, put all the information on their system and assign the sale to a negotiator. in some cases, it could take up to three months.

7. Negotiate: The negotiator from the lender will order a broker-price opinion (BPO) and/or an appraisal of your home. Typically, if the offer you've received is within 5 percent of the BPO, the short sale will be approved. If the offer is too low, the lender may counter with a higher sales price. This may lead to additional negotiating. Stay in touch with your agent and don't get discouraged. The entire short sale process could take a couple months or it could take a lot longer.

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