A short sale is the sale of an asset, in this case, your home, for less than the remaining loan balance.
Qualifying for a short sale is limited to individuals who have suffered long term hardships and are now unable to maintain their loan and to those individuals who must sell to avoid a default loss. You must start by contacting the Loss Mitigation Department of the lender who holds your loan. Since there are legal and tax issues when engaging in a short sale; it would be wise to consult a tax attorney. They will represent you in regards to the additional tax ramifications you may encounter by doing a short sale.
Using a short sale as a way of selling your home may give you some control over the timing of the sale and the time it will take for you to move from your home.
five steps for a short sale:
1. Contact the Loss Mitigation Department of your lender; they will assign a mitigation specialist to your file. They must approve you to go any farther.
2. Consult or hire a tax attorney.
3. Get a signed purchase agreement between you and the buyer of your home. The new buyer must be able to qualify for a new loan. Use an experienced realtor who has knowledge of short sale requirements.
4. Have a HUD-1 Settlement Statement prepared (This will be estimated).
5. Be ready to provide Lien Release letters from other mortgages and any liens against the property.
6. You must prepare a Hardship Letter for submission, detailing the reasons you could not pay your mortgage and got behind and what long term hardship has caused you not to be able to continue to pay on your loan in the future.