Short Sale Loss Mitigation Guide

A short sale is a form of loss mitigation wherein a bank accepts the sale of a home for less than what the borrower owes on it. Once forwarded to the bank, the proceeds of a sale are considered full payment and the mortgage is considered settled. Many people turn to short sale as a backup in case other loss mitigation options, such as loan modification, fail to put them back on track. While the homeowner still loses his home, the credit damage is less severe than in a foreclosure and much easier to recover from.

Of course, the main drawback to a short sale is that not all lenders will agree to it. Often, they will suggest other loss mitigation forms that aren't as reliable but means less drastic losses on their part. If you're considering a short sale, here's a guide to approaching your bank and getting your deal approved.

1. Get informed - The first step is calling your lender and finding out what you have to do. Find out which documents they require, how applications are evaluated, and how long it takes on average. It may take time to reach the right person or department, so start as early as possible.

2. Talk to an agent - Short sales aren't the most attractive listings on the market, and you'll need professional help to draw in buyers. This is especially important as there's a limit to how long a short sale can take. A real estate agent with specific experience on short sales can help you sell your home faster and for a better price.

3. Gather your papers - As with other loss mitigation processes, most short sale applications require a hardship packet. This is usually a bunch of documents that paint a general picture of the financial situation that caused your default. Among the most important are bank statements, tax forms, and income stubs.

4. Stay in touch - Once you've sent in your package, make sure to follow up once in a while to see how it's moving. It's likely that your bank will want further information, such as property information and market values, so be prepared to fax them in or request them from your agent anytime.

5. List your home - Once you and your bank have agreed on a short sale price, it's time to put your home on the market. Your real estate agent can put your home on the listings, but you can also take the initiative and get word around yourself. Remember, you're working on a given schedule, so the more effort you put in, the better.