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To avoid foreclosure, which could stay on your credit report for up to 10 years, you can sell property if it is valued under the mortgage balance.  This is called a Short Sale. 
A legitimate contract, submitted before foreclosure with correct documents, can stop a foreclosure while the Servicer reviews the case.  A sale does not have to be completed.

*Other Resources:  Do Not Panic  Know the difference between collection letters and foreclosure letters.
                             Information You Need  F.A.Q's about short sales, tax liability, deed-in-lieu, and more.
                             Mortgage Servicer Document Requirements  Chart of documentation, listed by Servicer.

STEP #1: Choose a Realtor. It is recommended that you utilize a Realtor familiar with short sales. The Realtor will be responsible for collecting, preparing, and sending required short sale documents, including a preliminary HUD1 settlement statement. Click here for Mortgage Servicer Required Documentation. The Realtor will assist you with Servicer follow-up and will complete additional tasks often requested by the Servicer before a final short sale approval is given. Please note: Mortgage Servicers are backlogged which often results in long wait times. We recommend that both Borrower and Realtor follow up on files, as directed by scripts shown in Step 15.

STEP #2:
Clean and de-clutter property's interior and exterior before putting it on the market. Remember, the way a property looks does make a difference. To avoid distractions, pack and store personal pictures, collections, and items on countertops. To create space, remove and store excess furniture.  Add a floral arrangement or greenery to create warmth.  Make cosmetic repairs if possible. With an excessive supply on the market, sometimes Sellers get one chance. Give it your best effort!

STEP #3: Price the property for the market, not at the mortgage balance (unless the mortgage is the market value).  It is possible to obtain an offer immediately.  In most areas, the real estate market is experiencing sharp price declines. In a declining market, price for a 30-day sale because market values can decrease monthly.  If the property has not received offer(s) in 2-3 weeks, it is probably overpriced.  We recommend that you drop pricing at realistic intervals weekly (consult your Realtor) until you receive an offer.  If your listing becomes stale (which can occur after 3 weeks), often the Realtor will have to dramatically drop the price to "draw attention" to the property.  Overpricing can lead to a lost opportunity to sell or to discounted pricing. There is an oversupply - the buyer, not the Realtor, determines value. Value is what the buyer is willing to pay after considering all the choices in the marketplace.

STEP #4: You will need to authorize your Realtor, and possibly the Realtor’s assistant, to speak to your Mortgage Servicer on your behalf.  A Letter of Authorization authorizes a third party, such as a Realtor, Friend, or Counselor to speak to your Mortgage Servicer about your loan(s).  To obtain a Letter of Authorization click here. Use one for each Servicer.  Fill in the name of the authorized person(s) and then your personal information. Fax this form - without a fax cover - to the Letter of Authorization fax number listed in the 1st column Important Numbers 2nd Chart Short Sale Contact Numbers.  Allow 72 hours for it to be uploaded by the Mortgage Servicer.  It is becoming increasingly difficult with some servicers for other persons to help Borrowers without a Letter of Authorization already on file. If you need another person to help you, please fax this authorization immediately and confirm with the Servicer that is it has been received to avoid complications later.
If you have filed bankruptcy and you are still under jurisdiction of the court, you can review loan workout options with your Servicer, if a Consent Form from the Bankruptcy attorney is faxed directly into the Servicer’s bankruptcy area. To obtain a sample Consent Form click here.  Send this form to your bankruptcy attorney to prepare and ask your attorney to fax it in to the Servicer’s Bankruptcy Department.  Find the fax number under Important Numbers 3rd Chart Bankruptcy Numbers or ask the Servicer’s Bankruptcy area for the fax number.

STEP #5: Prepare documents for the Realtor.  A file will not be worked until all documentation, including the contract to purchase, is confirmed received. Some Servicers will accept some documents prior to receiving the contract but it is highly recommended that the Realtor send all documents together. See Mortgage Servicer Required Documents here.

STEP #6:
The Mortgage Servicer most likely will want to see a summary of your financial situation before approving a short sale. We recommend practicing with Operation Restoration's Financial Worksheet (click here). This will bring up a blank form and a sample. Include this in your package to the Realtor.
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Your Servicer may require their own financial worksheet.  If you see your Servicer here, click on the Servicer's name to obtain their required financial worksheet. See Chase, EMC, and Washington Mutual (all owned by Chase), Saxon, RBC, American Home Mortgage, Indymac and One West (Indymac was sold to OneWest), Capital One (Capital One includes Financial Worksheet and Hardship Affidavit). Sign and date it.

Important Tips about preparing your numbers for the Financial Worksheet  (refers to  Operation Restoration’s financial statement):

Reporting Assets and Income:
1. List estimated value of all autos even if you do not have auto loans.
2. List a realistic, conservative value for your property. Do not use the property tax assessment and do not list the mortgage balance unless this is substantiated by a professional.  The following recommendation is not mandatory but is meant to help you be aware of your current market value. You may want to ask 1-2 Realtors who work in your area to give you a “CMA 1 page Summary”. This is free and will take a Realtor just a couple of minutes.  If later you decide to sell your property, this Realtor may be the one you ask to sell it. If you do get the help of a Realtor, ask them not to pull records older than 6 months and to use properties similar to yours (not extreme variations).  Mortgage Servicers do run internal valuations so it is better for you to be knowledgeable.
3.  Show income, including unemployment income, for the most recent one (1) month/30 day period. This does not apply to people using Profit and Loss sheets who are reporting average gross and net monthly incomes. Profit and Loss sheets are covered in Ways to Show Income below.
4 . For income, do not estimate Gross and Net Income amounts! These amounts have to be exact and verified by documentation.
5.  If you have other income (listed in the Additional Other Income box), please circle all income types that apply.
6.  If one of the co-borrowers is now unemployed and not receiving any income, it is recommended that the co-borrower prepare a separate letter explaining that he/she is not receiving income.  Sign and date. 

Reporting Expenses:
1. Include property taxes and homeowner's insurance in the right expense column of the financial statement only if they are not included in the mortgage payment.  Pro-rate them into monthly amounts.  Do not show taxes and insurance if they are included in the mortgage; instead, write "included" in the available space.
2.  Present all expenses in terms of monthly amounts, even if you are billed every 6 months, 3 months, etc. For example, if you pay your auto insurance every 6 months, divide the amount by 6 and give the result next to "auto insurance".
3.  Do not double count expenses.  If a loan or other amount is deducted from your Gross income, do not place it under Expenses.
4.  If you are self-employed and using a profit and loss sheet, deduct business expenses from Gross Income.  Do not put business expenses under Expenses on the financial worksheet.  The financial worksheet is for personal expenses.
5.   If you are not paying on your credit cards or other loans, place monthly minimum amount(s) due anyway – they are used in the calculations to determine if you meet Investor guidelines. Remember, Mortgage servicers pull credit reports to verify numbers you report on the Worksheet. (If you have filed bankruptcy which has eliminated credit card debt, then put 0 next to credit cards).  If you are unsure about your minimum payments, call your credit card company or ask for a free credit report from a credit bureau such as Equifax.
6.  If you have other Loans, such as other mortgages, place these amounts in empty or unused spaces on the Financial Worksheet and mark “Loan 1, Loan 2, etc”. Report rental income in the “Other Income” box on the Worksheet. (Please note: Servicers only count 75% of rental income as income.)
7.  Bankruptcy clients: place your Trustee amount in the expense column if the amount is not automatically taken out of your pay every month.
8.  If you receive food stamps and this covers food expenses, write "Food Stamps" next to Food and put "0" for monthly food expenses.


Ways to Show Income
To avoid confusion use one (1) method per Income.  (In other words, do not show the same income via a pay stub and by circling direct deposits on bank statements). Always show the most recent one (1) month/30 day period.  Please note: this does not apply to people using Profit and Loss sheets who are reporting Average monthly gross and net incomes.  Profit and Loss sheets are explained below.

Recommendation:  Write on documents you are using to verify income: "Use As Income Verification". This will help the Servicer’s employee to quickly identify what you are using as supporting documents.

These are 12 ways to verify income listed here:
1.  Pay stubs from full-time or part-time employment (most common request from Servicers).  Remember to show the most recent 30 days or 1 month period.  As paystubs are sometimes hard to read, we recommend that you circle Pay Dates, Gross Income and Net income. (Gross Income is BEFORE any deductions. Net income is AFTER all deductions).  
       »  Write Gross and Net Income numbers CLEARLY somewhere on the stubs.
       »  Write somewhere on paystub: "PAID TWICE A MONTH" or "PAID EVERY TWO
           WEEKS" or "PAID ONCE A WEEK".
Click here for an example.
2.   Profit and Loss Sheet.
Click on the desired format here to obtain a template: Template in Excel  Template in PDFUse the Profit and Loss Sheet If you are self-employed or if your income fluctuates considerably month to month and you want the servicer to use average income.  (Make sure to explain this fluctuation in your hardship letter).  If you are self employed, take total Gross and Net income during the self-employed time period (use at least 6 months and 12 months if you can) and divide by the number of months to get an average monthly amount for Gross and Net Income.  One word of caution: Many investors serviced by Bank of America may require a Profit and Loss sheet signed by a CPA, but if you develop your own and afterwards are asked to provide one by a CPA, you can then meet that requirement at that time.
3.   Direct deposits.  Use the page or pages from the most recent bank statement and circle the deposits.  Click here for an exampleUse this way only as an alternative if you do not have pay stubs. Remember to write “Use as Income Verification” somewhere on the page. This does not replace the requirement to submit full bank statements. This is only to verify income.
4.   Unemployment letter showing amount of pay or copies of pay stubs (showing last 30 days of pay).
5.   Pension/Benefits Statement showing the monthly pay to you or a contributing member to household.
Click here for example pension statements. To obtain one: Call the number listed on any correspondence from the benefits provider and request a copy of the statement.  The benefits provider is also listed on checks. Some providers will fax letters and others will mail them.
6.   Social Security Rewards Letter showing the monthly pay to you or a contributing member to household.
Click here for example social security letters. To obtain: Go to the local Social Security office and give your id for immediate response or call 1-800-772-1213 and request the rewards letter. They will mail a statement at your request. 
7.   Disability benefits statement showing the monthly pay to you or a contributing member to household.
 Click here for an example V.A. Disability letterTo obtain a V.A. Disability letter: Go to the local V.A. Administrative office or call 1-800-827-1000, press 0, and give your social security number or military I.D. They will fax and mail a statement at your request.
8.   Child support agreement.  If you receive court ordered child support, you will be required to provide the court document or agreement.
9.   Alimony agreement.  If you receive alimony, you will be required to provide a document verifying alimony, such as a divorce settlement.
10.  DFACS agreement. If you receive income from DFACS for a dependent, then a document verifying this fact will be required.
11.  Rental Agreement.  Click on the desired format here to obtain a template:
Template in Word  Template in PDF.  Use a rental agreement if you rent a room or property to another party. Please note: Some Servicers -- such as Saxon -- require a rental agreement, even from a family member.living or contributing to household. Most of the time, however, income verification from a contributing household member will suffice. You can either ask the Servicer up front or provide documentation and learn it later when you ask (per our scripts) if there is any documentation missing.
12.  A notarized Letter from another person contributing to household.  If you use this method, proof of income (most recent 1 month) from the person contributing to household is also required. Click here for examples:
 Example in WordExample in PDF.

1.   If you are using several income sources or several deposits during the most recent month, it is best to use an income summary. Click here for examples: 
Example in WordExample in PDFAll borrowers are to sign, print, and date this page.
2.  Cash received for services must be verified! Before spending cash, deposit cash immediately into a bank account so that deposits may be verified from bank statements. Then withdraw the amount needed.

3.  As stated before, If one of the co-borrowers is now unemployed and not receiving any income, it is recommended that the co-borrower prepare a separate letter explaining that he/she is not receiving income.  Sign and date.

STEP #7: Prepare a letter explaining your hardship. We have provided samples on the website with a suggested format. Sample in Word format  Sample in PDF format.       Write a ONE-page letter following this format and remember to remain brief. Use relevant (current) reasons for hardship. Please note: If letters are over 1 page, pages can get separated, and can cause file delays or closure of your file.  Make sure to sign, print, and always currently date your letter.

STEP #8: Your Servicer may require a Hardship Affidavit.  If you see your Servicer here, click on the Servicer to get the form:  Chase, Washington Mutual, EMCOcwen, GMAC
Indymac and OneWest (Indymac now One West), Capital One(Capital One also includes Financial Worksheet)
If there is a space provided for a narrative, write "See Hardship Letter Attached".

STEP #8a: NEW! Get new Dodd-Frank Certification here. Fill it in and include with your other documents.

STEP #9:
 If you see the requirement here in Mortgage Servicer Required Documentation, collect two (2) months most recent bank statements – ALL accounts, ALL pages. (Note: Wachovia requires 3 months at this time). We recommend that you send literally 2 months of bank statements, not 60 days of transactional detail because they are looking for 2 months. If you do not have paper statements available, you can usually go online, choose "VIEW PAPER STATEMENTS", and retrieve an actual bank statement.  If you have a business account and are reporting income as a self-employed person, also send two (2) months most recent business bank statements (only if you have a business account).  If the negotiator needs more later, you can send more at that time

STEP #10: If you see the requirement here in Mortgage Servicer Required Documentation, collect the required number of most recent full tax return(s) and (we recommend) also your W-2's or 1099's.  If you have not filed your tax return, an extension you can get here will suffice.  Warning: Make sure you sign and date tax returns before sending, even if they are a copy. Failure to do so could result in a denial, or your file not being worked.

STEP #11: When you receive an offer on your property, sign the offer, collect the most up-to-date documents, write loan numbers on all pages, and make sure all documents requiring signatures and dates are signed and currently dated.  See Mortgage Servicer Required Documentation.

STEP #12: Before documents are sent to the Servicer(s), your Realtor will have an attorney or title company prepare a HUD 1 settlement statement.  See example HUD 1 statement.   For a blank HUD1 form, click here: Blank HUD1This is mandatory and has to accompany the documents.  The HUD1 shows the Servicer(s) how funds are being distributed.   If there are two loans, the HUD1 should appropriate to the second Lender approximately 1% of the second loan balance, and the remainder should be appropriated to the first Mortgage company.  The title company or attorney will order payoff numbers for the loan(s).  The Seller should show receiving zero (0) dollars.  Recommended: To avoid delays, make sure the real estate commission is stated correctly on the HUD1. Ask your Servicer for the maximum real estate commission allowed.

STEP #13: Write loan numbers on all pages and fax your documents to the Realtor after you have checked them thoroughly for accuracy and completeness. You are welcome to use the fax cover provided below. This may start a community effort to work together to help each other.
Prepare to fax:
»  Print out the appropriate fax cover sheet, fill in your personal information at the top, and Mortgage Servicer name, fax number, and phone number.
»  Use one fax cover per Loan.
»  If your Mortgage Servicer is handling both of your loans, remember they are treated separately.  We recommend that you prepare 2 packages, one for each loan number. 
»  Follow the check list on the cover sheet and place everything in order. Change your cover sheet, as needed to reflect your personal items, for example - income from 2 sources, or a profit and loss sheet.
»  Click here for Important Numbers.  Look in the 2nd Chart for your Servicer's Short Sale phone and fax numbers. Numbers are always being added or changed according to what we learn. We always recommend that you call the number found in the Column 3 and verify the numbers before sending documents.
»  Important! If you have two (2) mortgages or a first mortgage and home equity line, be aware that the second mortgage servicer may not want to review the short sale package until there is an approval received from the first mortgage servicer.  To save time, it is recommended that you ask the second servicer's policies on this subject.
»  Important!  Make sure you do not have any hinderances with your Servicer.  For example if you previously had requested a loan modification and were in process, then you decided to sell your property, ask your Servicer to CLOSE OUT/BACK OUT any request with the area handling loan modifications and have them notate that you will be pursuing a short sale approval.  This is very necessary to avoid errors in the Servicer's system. 
FAX COVER for SHORT SALE  Click on one:   Word format        PDF format
Note: Use this cover if you are behind in your payments.  See fax numbers here: Important Numbers. Customize fax cover as needed.

STEP #14: Your Realtor will fax all documents to your Servicer(s).
  CRITICAL!:  Ask your Realtor to record the following information:  Date and Time fax was sent in, fax number faxed FROM and fax number faxed TO.  You and your Realtor will need this information when you call to follow up using the scripts below.

STEP #15: Here are the scripts to use when following up with your Servicer. Remember, if you are not paying your mortgage, you will continue to receive calls from the Collections area.  If you do speak with them, please tell them to notate that you are under review for a short sale. They are trained (and are measured) to attempt to collect money from you. This will not stop the calls as this is an automated function with all Servicers. It is your choice whether or not to make a payment during the period of short sale review (making payments could help your credit rating but it is not mandatory).  

Always ask, if you receive a call from the Servicer, to what department you are speaking. The Foreclosure/Collections area is designed to collect money and to set up Repayment plans and they do not normally communicate with the Loss Mitigation or Short Sale areas.

Use these scripts closely as there is a reason for the wording.  You do not have to say anything else.  Because of backlogs, the entire process from beginning to end may take several months.  Remember to remain calm and patient.

IMPORTANT!  We recommend that Borrower and Realtor participate with follow up as Servicers are backlogged and delays are often extensive.

SCRIPT TO DETERMINE PAPERWORK WAS RECEIVED - Call every day until documents are confirmed received. 
»  Note: Use this script 72 hours after faxing (to give Servicer time to upload).
»  Starting 72 hours after faxing, call every day until documents are received.  If documents have not been received within one week, check the short sale fax number with the Servicer and fax again.

    Short sale documents, including the contract, were faxed on _______, at
               ______ time.  I am calling to see if they were received.
              (If yes): Are there any documents missing? 
Note: ask this every time as
                           documents do get lost or additional verification may be needed.
                           (Make sure the Servicer checks the system). 
                           Is there a status on my account?
              (If no):  If I give you the fax information, will you be able to find the documents?
                          (If yes): give the date and time of the fax, and fax numbers to and from
                          (If no): I will call back. Thank you."

SCRIPT TO USE AFTER PAPERWORK IS RECEIVED - Call once a week until Negotiator is assigned..

       Short sale documents, including the contract, were faxed on ______, at
                 ______ time. They were received ________ date (give date you learned).
                  Are there any documents missing?  
Note: ask this every time as documents do
                 get lost or additional verification may be needed. 
(Make sure the Servicer
                 checks the system). 
                 I am calling to check status.
s there a negotiator assigned?"
                    (If yes): May I have the name, phone number and email address of negotiator?
                    Note: if they do not give this out:
                               »  Ask if you can have the name,
                               »  Ask if you can be transferred to the negotiator (BEST) or if they can
                                   email the negotiator to call you.
SURVIVALTIP:   If you believe you have a foreclosure date in the system, ASK them to look it up.  If you do, do not panic.  When your documents are sent to the Servicer, they will continue to push the foreclosure date FORWARD in their system to give themselves time to work the file, or they will take the date OUT.  Make sure to call the Servicer, starting three (3) days before the foreclosure date, to verify that the foreclosure date has been moved or stopped.  CRITICAL: THEN call the ATTORNEY and make sure the attorney has been notified.  

SCRIPT TO USE AFTER A NEGOTIATOR HAS BEEN ASSIGNED.  Call once a week until you receive an approval.
Note:  Call the Negotiator if you have his/her name and direct contact information. Otherwise, call the Short Sale area.

YOU:       Short sale documents, including the contract, were faxed on ______, at
                 ______ time.  They were received ________ date (give date you learned).
                  I am calling to check status.
                 Are there any documents missing?"  
Note: ask this every time as documents do
                 get lost or additional verification may be needed. 
                (Make sure the Servicer checks the system). 

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STEP #1:
Once a negotiator is assigned, a BPO (Broker's Price Opinion) will be ordered by your Servicer(s). 
A realtor contracted by the Servicer will most like visit the Borrower's property to determine a value for the property.
Note: Most likely you will continue to receive calls from the Servicer's Collection/ Foreclosure area during the approval process of your short sale, especially if you have stopped making payments on the property.  Always ask, if you receive a call from the Servicer, to what department you are speaking.  The Foreclosure/Collections area is designed to collect money and often is not notified by the short sale area that your property is being reviewed for short sale approval. 
SURVIVALTIP:   If you believe you have a foreclosure date in the system, ASK them to look it up.  If you do, do not panic.  When your documents are sent to the Servicer, they will continue to push the foreclosure date FORWARD in their system to give themselves time to work the file, or they will take the date OUT.  Make sure to call the Servicer, starting three (3) days before the foreclosure date, to verify that the foreclosure date has been moved or stopped.  CRITICAL: THEN call the ATTORNEY and make sure the attorney has been notified.  

STEP #2: The negotiator may send your Realtor a couple of amendments for you to sign.

STEP #3: You and the Realtor should continually ask if there are any missing documents when you follow up as the file may have to be updated with current documents or documents can be lost.

STEP #4:  After a complete review, the negotiator will send your Realtor a conditional approval for your short sale, or if the Servicer does not agree with the offer, the Servicer will counter the offer.  Upon conditional approval, the Buyer for your property will generally be given 30-45 days to close on the property.  If the Servicer submits a counter offer, your Realtor will have to attempt to obtain the adjusted price from the Buyer or challenge the Servicer's BPO by asking for an internal inspection or by presenting additional supporting market value information.
Important: Before signing the document, we recommend that you understand how the Servicer(s) will handle the short fall.  Some will release you from any liability altogether, some will issue a 1099 C (see Information You Need: Short Sales), some before approval will ask you to sign a promissory note to define a payment plan to pay all or part of the short fall, and some before approval will want you to sign a statement accepting the responsibility for the shortfall .  In this latter situation, they will state that a Recovery department will call after the sale to make payment arrangements.  This debt is unsecured  and can be settled often for a small percentage of the total.  Some borrowers file bankruptcy later to eliminate this debt.  Please consult a tax professional for tax-related questions and a bankruptcy attorney for bankruptcy questions.

STEP #5: The Realtor will send to the negotiator at the Servicer(s) a final HUD1 Settlement Statement showing up-to-date payoff numbers and fund disbursements 24 hours prior to closing.

STEP #6:  A final approval will be sent to your Realtor for the day of closing.  You, as Seller, sign the final approval which completes the sale.  

Please write us at hope@OperationRest.org and let us know the outcome of your short sale.  If you need additional help, or need Servicer executive level intervention, please contact us immediately.

This information is provided free of charge by Operation Restoration. Donations are critically needed to help this mission move forward. If this material has helped you or someone you love, please click on the Donate button below.  May God bless you.
                                                                                             - Anne Batte, Executive Director
                                                     Copyright 2010 Operation Restoration

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Thank you for contacting Operation Restoration. Please fill in the information below if you need clarification on material or guidance on strategy. We will contact you shortly. Notes: (1) While the information provided on the website is free to use (if it helps you in any way, please remember to donate), we are transitioning into a donation-based personalized assistance operation. As you know this arena is very specialized. This mission has spent extensive hours over the past 6 years to remain ahead of the curve. (2) Remember, your participation and team work are necessary as ongoing in-depth research is necessary to achieve leverage. Education empowers people to survive and succeed. We look forward to speaking with you. Sincerely, Anne Batte Executive Director