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Short sale documentation: what’s the need?

There are changes on the short sale process horizon, but for now, practitioners must understand the need for the hefty documentation requirements on all short sale transactions.

short sale documentation

short sale documentation

Documentation Requirements

There is often nothing short about a short sale. Short sale aficionados know that short sale sellers (the borrowers on the mortgage) must provide the short sale lender with a whole slew of documents in order to get the short sale processed and (hopefully) approved.

Here’s a question that came in earlier in the week from a fellow agent:

“Forgive my ignorance… while I fully understand the need for a short-sale seller to be helpful, motivated, forthcoming, here is my question: Why is there a need for 2 months pay stubs for all borrowers, 2 months bank statements for all borrowers, and 2 years tax returns?”

First off, if you are not working short sales day in and day out, you do have to wonder why there is a need for all of the documentation. One the one hand, the short sale lender is losing money every day, so wouldn’t it behoove the lender to just approve the short sale as soon as possible? Yet on the other hand, the same short sale lender often muddies the process with loads of processing guidelines.

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Short Sale Guidelines

Most mortgage lenders or servicers do require a complete income package from each borrower that is named on the note or deed of trust. These documents often include pay stubs, bank statements, and tax returns (or documentation that proves that these same items are unavailable).

Short sale documentation is often required in order to determine whether there is a verifiable hardship or proof of imminent hardship. Many short sale lenders have guidelines with respect to hardship and can only approve short sales where they collect this documentation, and verify that the seller has a legitimate hardship—not just a plan for strategic default.

That being said, coming in just a few weeks Fannie Mae and Freddie Mac will have streamlined short sale processing guidelines and, according to the announcement, they will have less stringent documentation requirements in order to approve the short sale.

Now, wouldn’t it be nice if your future included short sales were actually short?

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.


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