How To: Negotiate a Short Sale with Your Lender

Facing a foreclosure is scary. But a short sale--selling your home for less than what you owe on your mortgage--might help you avoid it.

In order for a short sale to work, your lender has to agree to accept less than the full balance left on your loan. It’s not ideal, but you’ll both benefit: You avoid foreclosure. Your lender gets most of the mortgage loan without having to go through an expensive foreclosure process. Plus you’ll be able to buy another primary residence in two years--three years sooner than if you had foreclosed on  your home.

Negotiating a short sale

Negotiating a short sale isn’t easy. Your best option is to find a professional real estate agent with experience in short sales. Your agent can help you give the bank a realistic price tag that also works for you. And that can be a tricky balance. Once you have a buyer and a reasonable price, you start the process with your lender.

Inform your lender

Now that you have a buyer, you need to write a hardship letter to your bank. Let them know your current financial situation, why you can’t honor your mortgage, and any major life events--like a divorce or work layoff.

Make sure your bank has all the relevant information

Speed up the process. Make sure you provide your bank with everything they need. Different lenders might need different information, so check before you send your packet. Typically, you’ll need to provide:

  • Hardship letter

  • Bank statements (including the last two months of your savings and checking accounts)

  • Tax returns (covering the last two years)

  • Payroll stubs (at least the last two)

  • Executed Listing Agreement (showing the terms of the listing)

  • Estimated closing statement (HUD)

  • Purchase contract

  • Pictures of your home

  • A market analysis of similar homes in your market

When in doubt, include anything that will help to give your lender a clearer picture of your proposed short sale.

Get mortgage quotes.

Be patient. Be consistent. Be relentless.

Your short sale probably won’t be approved immediately. No matter how good your short sale package is, it takes a while for your information to clear all the necessary hurdles.

Don’t just sit back and wait. Know how to contact the negotiator in charge of your application and call often to ask about the status of your request. You can also ask if there’s anything you can do to make the offer more appealing.  

Depending on your lender, you may wind up dealing with multiple negotiators throughout the process. Don’t get frustrated. Update the new negotiator on the details of your offer and keep calling back to make sure the process is moving forward.

Never stop keeping records

Get everything in writing and keep all your records. If you’ve done everything correctly and your request meets the short sale policies of the bank, your request should be approved. But if something goes wrong you might have to go to court and you’ll be thankful for your records.