A short sale is the process of selling a house for less than the value of the remaining mortgage balance on it. To illustrate how it works, let’s look at a hypothetical situation.

You borrowed $350,000 to buy your home five years ago after it was appraised at that amount. You lost your job a few months ago and fell behind on your mortgage payments, making you wonder if you’re better off selling to eliminate the financial burden. However, a comparative market analysis shows that your home is now worth $290,000, and you still have $320,000 left on the original loan.

If you’re still intent on selling, you can ask the lender for permission to put the property on the market for $290,000. If they agree, they will receive less than what you originally borrowed, but still consider the debt repaid in most cases. This is because the short sale allowed them to avoid the time-consuming and stressful process of foreclosure.

Once the decision is made to proceed with a short sale, the next step is to find a realtor who will place the home on the local MLS to find a buyer. You will sign a listing agreement with the realtor, but its terms are contingent upon the bank approving a short sale. If you provide written authorization, your realtor can speak with the lender on your behalf and determine what will be required for the sale to be approved.

You will need to have the following documents ready for the lender’s consideration:

• Hardship letter explaining why you have encountered financial difficulties and how they are preventing you from making your mortgage payments
• A financial form that summarizes your financial situation. You can get a form letter from your lender’s loss mitigation department.
• Proof of income, such as pay stubs, tax returns, and bank statements.
• List of assets in your name.

Once you secure a contract, the next step is to send it to the lender for review, along with a preliminary settlement statement and the documents above. If you are deemed eligible for a short sale, an appraisal will be ordered to determine the value of your home.

If your lender decides to accept the short sale offer, they will issue a “Demand Letter” that outlines the terms of the transaction, which hopefully includes releasing the mortgage lien and agreeing to not pursue you for a deficiency judgment. Short sale approvals typically last 30-45 days, which is why a cash offer is the ideal scenario, although many lenders will extend the demand letter if it looks like the deal will close.

Homeowners who are thinking about selling their property in a short sale should also hire an attorney to guide them through the transaction. An attorney can support your realtor, give you legal advice as the sale progresses, and assist you with the following services:

• Interpreting the short sale agreement: Sales documents for short sales can have distinct legal terms that someone without a legal background may misinterpret or fail to understand.
• Dealing with a deficiency judgment: Florida is a “recourse state” that allows lenders to seek deficiency judgments for unpaid debts. If your bank tries to make you pay the difference between the sale price and the mortgage balance, your attorney can help you negotiate a deficiency waiver, settle the deficiency, or file bankruptcy to deal with the judgment.
• Advice if the lender forecloses: If there are no buyers or the short sale falls through, the lender may take steps to foreclose on the property. Your attorney can advise you on the best way to proceed given your circumstances.

Getting a short sale approved and closed requires an in-depth understanding of the process itself, what lenders expect, and what borrowers need to do. An experienced short sale attorney can provide you with those answers, so for help you can trust, contact Ricardo Rodriguez at Rodriguez Law at (305) 262-8226.