Suppose you read my earlier post on why you should consider a short sale. What needs to happen in order to pull it off? Here is a short overview of the process.

Get The Right People Involved

It definitely helps to have a realtor involved in this process because there is a lot of back and forth, coordination, and information transfers. It’s really helpful to have someone handle all that for you - especially if they’ve been through this process before. A realtor can also help convince the bank that the property value warrants a short sale.

You will want to consult with an attorney because they can be helpful at several steps in this process, starting with getting your lender’s attention. One way to get your lender to consider a short sale is to stop paying your mortgage. However, I hear that is no longer the only way to get their attention and I wouldn’t recommend doing this without first consulting with an attorney. Then you will want your attorney involved again later in the process when your lender presents you with different settlement options so that you can understand the implications of them. For instance, you can sign a 0% interest note for the deficiency or the bank can just forgive the debt. Each of these alternatives has specific implications for your credit history, your future liabilities, and your taxes. You will probably want your attorney negotiating the terms of your deal for you, though your realtor will negotiate the offer with the lender.

Because of the tax consequences you’re also going to want to involve your accountant. For instance, under certain circumstances, when a sale is completed, you may receive a 1099 C from the lender that documents how large the deficiency was. As debt forgiveness, this would normally be taxable except that there is the Mortgage Forgiveness Debt Relief Act of 2007 that provides for this phantom income to not be taxable if the debt forgiveness is related to your principal residence and the debt is forgiven during 2007 - 2009.

Contact The Lender

Once you believe your lender is ready to consider a short sale someone needs to contact the lender to start the process. This is something your Realtor can actually do for you. The first step is to figure out who to talk to and to document the process. In general, you want to be dealing with the Loss Mitigation department, not customer service. They can outline the steps and the required documentation.

Prepare The Documents

Before the lender will have any discussions with your realtor that are specific to your case they are going to want to have an authorization on file that explicitly gives your permission for the lender to talk to the realtor. After that, the lender will need a short sale package on file. Every lender has a different process but in general the following documents are required in the short sale package:

• Copy of the listing agreement with any amendments
• A hardship letter, written by you, explaining your circumstances that require a short sale. If there is any supporting documentation such as medical bills or termination letters, those should be included.
• Financial information request form, which provides a summary of your income and expenses
• Copy of pay stubs
• Copy of income tax return
• Copy of property tax bills

Pricing The Property

Once your lender is in receipt of your short sale package and they have been authorized to talk to your realtor your realtor should call your lender to discuss pricing and the lender’s process for responding to offers. This is where a realtor can really add some value by figuring out what the lender’s targets are and how flexible they are. In addition, by understanding the process your realtor can set the appropriate expectations with potential buyers and possibly even expedite the response. The last thing you need is a realtor who just lets fate take its course.

Next Time

In another post I’ll cover what happens after an offer is made. In the meantime, if you would like some additional perspective on the short sale, check out this Atlanta based realtor’s blog.

Recently, I became extremely inspired.  Each year on Christmas, my mother, boyfriend and I drive to the not so great areas of Chicago to find homeless people and provide them with our spare coats, blankets, socks, gloves, etc.  We also give out money, home cooked,hot food and hot drinks. 

My mother realized that we had run ourselves out of coats and blankets and wrote the letter below to her neighbors. I’ve removed her address for obvious reasons.  In turn, I wrote a note to my friends and associates (also pasted below).

What suprised me most was the response from many of my friends and even more suprising, the response from friends of friends and so on.  With each response, I became more and more energized and am optimistic that this year is the beginning of something great.  We can make a difference, even if only a small one, in a homeless persons life and for me that is the best holiday gift!  The gift of hope.

My letter:

Happy Holidays!

I feel very fortunate to be blessed with wonderful family and friends and success in life so that I don’t have to worry about my next meal or the roof over my head. This year, we are especially eager to help those who aren’t as fortunate. While we contribute to the larger charity organizations, the giving that my mother, Dan and I do is much more personal, and of course, more rewarding. There is a great feeling of taking care of our own in Chicago.

If you have any items that you would like to donate, please let me know and I will arrange to pick them up from you.

Coats, shoes, scarves, gloves, blankets, toiletries are great items to give to a homeless person living on the street. We will cook a warm meal and bring hot coffee and chocolate to share with the homeless when we go to warm and feed the Chicago homeless.

Of course, if anyone else would like to spend time on Christmas Day helping with the delivery, you are more than welcome. For me, the experience has been humbling yet heartwarming and I would be glad to share it with you.  Sari Levy

Mom’s letter below:

Dear Friends/Neighbors,

Some of you know me, other of you do not.   My name is Norma Levy.   When I lived in the city and my children were growing up, at Christmas we used to deliver food and goods for an organization called the Little Brothers of the Poor.  I felt my children needed to know how fortunate they were and they loved doing it.

Since they have gotten older, my daughter, her boyfriend, and I have been dropping off blankets, warm clothes and food to the people who live on the street in the city (Chicago) on Christmas Day.  I know there are agencies who do this, but there are still plenty of people out there who actually live on the streets, mostly addicts and mentally ill.   

We are running out of blankets and warm clothes.  If any of you have items you would like to donate, I would appreciate it very much.    If instead, you prefer to donate cash, I will be glad to purchase extra food or blankets.  If I’m not home, you can leave any donations at my front door. 

Thank you for your support and I hope you have a wonderful holiday. Norma      

By the way, if you wish to donate any warm clothes or blankets, please contact me via email at:  slevy@lucidrealty.com or phone at 877 LUCID 99.