Short Sale Basics

By Christopher Horlacher, Esq.

What is a Short Sale?
A Short Sale occurs when a Lender approves the sale of a property for less than the amount that is owed on a mortgage or mortgages. The name, Short Sale, comes from the fact that the Lender’s payoff is coming up “short”. In fact, the lender will also be paying the real estate commissions and other closings costs. The sellers in a short sale typically cannot receive any funds from the sale.

Lender Approval
A Lender must approve of the sale. This is accomplished by first sending a Short Sale Package to the Lender(s). Next, the file is assigned to a loan negotiator at the bank that reviews the Short Sale Package. At this point a negotiation will take place as the bank wants to get as much money as possible from the defaulted loan and the potential buyers want to spend as little as possible to purchase the property. During this process the bank will order a Brokers Price Opinion or an Appraisal. Once the bank agrees to accept a certain discount off the mortgage amount, Short Sale Approval Letters are furnished by the bank and a closing follows thereafter.

Short Sale Package:
1. Purchase and Sale Agreement (from Realtor)
2. Addendum to Purchase (from Realtor)
3. Authorization to Release Information
4. Two Years FULL Tax Returns
5. Two Months Bank Statements (Most recent)
6. Last Two Pay Stubs
7. Fill Out Financial Worksheet
8. A Handwritten Hardship Letter
9. If FHA, Form 90036 and Homeownership Counseling Certificate

What is an Authorization to Release Information?
An Authorization to Release Information (ARI) is a document that allows your attorney or negotiator to communicate with the lender concerning your short sale. This form will allow your attorney or negotiator to order payoff, send in a purchase offer to the bank, and to negotiate with bank negotiators. Banks will not speak to any negotiator that has not first submitted an ARI that includes the seller’s names, signatures, social security numbers, and bank account information.

What is the Financial Worksheet?
The financial worksheet is a standard form that is used to show a seller’s budget; income vs. expenses. Some lenders may require that this information be resubmitted on their own form. Your personal financial information is needed and should be as exact as possible; including gas, car payments, mortgage payments, food, medical, child care, entertainment, etc. Lenders want to see where your money is going and may deny your short sale request if there is a surplus of money at the end of each month.

Frequently Asked Questions:

Will I Qualify?
To qualify for a short sale, a property owner must typically be in default. This means that the property owner is behind by at least three payments. Most often, there is also a foreclosure case filed against the property owner by the Lender.

How Will This Affect My Credit?
If you are in default, chances are that the Lender has already reported you to the credit bureau and damaged your credit. A Short Sale will prevent your property from being foreclosed upon and sold at auction, further hurting your credit. While a Short Sale will not solve your credit problems, it is better than the alternative.

What is a Hardship Letter?
A Hardship Letter is a simple letter provided to the bank that illustrates the reason(s) why you have fallen behind in your payments. The letter should include any and all events that have led to financial hardship, including, but not limited to, divorce, job loss, bankruptcy, reduced hours at work, illness, death or disability. The Hardship letter should also include any measures you have taken to sell the property. For example, did you list the property with an agent or For Sale by Owner? If so, how many showings were there? Also, it is wise to include any repairs that are needed on the property in the hardship letter.

Disclaimer: While The Suncoast Lawyer is in fact a lawyer, nothing in this article is legal advice. Please consult an attorney that can become familiar with the details of your case and then offer advice that is correct for your specific situation.

The Suncoast Lawyer, Attorney Christopher J. Horlacher, is an attorney practicing law in Sarasota, Florida. Attorney Horlacher focuses mainly on the areas of Real Estate Closings, Foreclosure Defense, Short Sale Negotiation, Construction Law and Business Law.

His website is and his email address is

Article Source: Short Sale Basics

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