How to Prepare for a Short Sale
Credit to Steve Stovall - with some updates and changes by Editor Don Leske
II
First and foremost, all short sales must be qualified and approved by the
loss mitigation department of the lender or lenders involved and they all
have their own methods, ways, means... and addenda.
A qualified Short Sale must be justified with cause for the short sale. A few examples of
justifiable cause are:
- Illness of a borrower or co-borrower that qualified for the loan and because
of such illness can not continue to make payments. This example would, of
course need to be accompanied by a doctor's statement of permanent or long
term disability.
- Death of a co-borrower who originally qualified for the loan.
- Divorce or legal separation accompanied by legal documentation and
attorney's correspondence.
- Involuntary loss of job or a significant modification in pay with
documentation from employer and recent and past check stubs as verification.
- Illness of a family member wherein the borrower or co-borrower are the only
ones that can provide care, again a doctor's statement would be required.
There are several other situations that would effect proper qualification.
The important thing to remember is that they must be qualified and proven in
writing to the lender or lenders.
Frivolous reasons will not be approved by the bank. For example;
- If you quit
your job or were fired for just cause;
- refinanced or acquired a loan with an
accelerating payment, high interest rate or negative amortization;
- ran your
credit cards up to the max and can't afford all your monthly payments;
- bought a new car or other large purchase and can't make all your payments;
- or decided to separate from a spouse or significant other co-mortgagor
with or without a divorce or legal separation.
Under these circumstances, you may not not qualify for a
Short Sale. The lender would likely foreclose, but each case is weighed on
its own merit. You may want to contact the lender and explain your unique
situation.
Once you've decided to move ahead with your Short Sale, it is very important
to hire an agent with experience in your community if possible and with
short sale experience. Your real estate agent and
escrow officer can make or break a Short Sale transaction. Loss mitigation
departments are overloaded with files, and your choice of representation
will definitely help to smooth the process. Pick your agent in the same way
you would pick an Attorney or Doctor if you had a serious matter facing you.
An experienced agent will have a good working relationship with a good
escrow officer, title officer, home inspector, etc. About 10% of the agents
in the field today are doing about 90% of the business; it would be a good
idea to use one of the better agents to help you affect a successful Short
Sale.
Now that you've decided to move ahead with your Short Sale and you've
selected an agent, you'll need to prepare a package for the lender. Included
in your Short Sale package, it will be necessary to include but not
necessarily be limited to the following items:
- A letter from the borrower
requesting the lender to consider your Short Sale. This letter should be
prepared in a professional manner outlining the reasons why you feel that
you are a qualified candidate and include all documentation that will help
justify your cause. Keep the letter brief, to the point and as professional
as possible.
- Provide your past two years tax returns, all current bank
statements for the most recent two months, and two recent pay check stubs
from all borrowers.
- Also include any documentation from employers regarding pay modifications,
pink slips, etc.
- A letter from your agent regarding the current situation
in your particular marketplace along with a current BPO (Brokers Price
Opinion) showing comparables that are accurate within the past 90 days. Most
Lien Holders will insist on their own BPO.
- Also
include a copy of the MLS printout and a copy of your Listing Agreement and
Agency Agreement.
- Your agent should also include an estimated seller's net
sheet showing the potential loss at time of projected closing.
It would be a
good idea for the seller to contact the lender via telephone prior to
submission of the before mentioned package.
The lender will likely hold on to the package pending submission of an offer
acceptable to the borrower—be prepared to send a shadow package at that
time.
Upon successfully negotiating an offer with a potential buyer, send the
accepted offer along with a lenders pre-approval letter for the potential
buyer ahead to the lender. If you have more than one loan on the property,
send the above information to only the lenders that will be affected by the
short sale. Also, be reasonable in your values, i.e. if your property is
worth $700,000 according to recent comparables—price it accordingly. Over or
under pricing your property will only complicate the issue. The lender will
scrutinize and verify all information very carefully. Put together a fair
and reasonable package and you'll have a fair chance of successfully
completing your qualified short sale transaction. See the
Short Sale fact sheet by
Don Leske II / Senior Broker at BCI Properties, LLC for more info.
As a buyer of a short sale, you'll be at the mercy of all the intricacies of
the short sale. It's important to remember that the lender is unlikely to
allow any further loss than is necessary. There are very few "killer deals,"
lenders are trying to not lose any more money than is necessary. Be prepared
to pay a reasonable price, also be prepared to wait 60-90 days to close...but
it can be up to 4 or 5 months.
Also, you could get to day 89 and the lender could deny the sale; you'll
have no recourse. Have your agent pre-qualify the purchase, to the best of
their ability, prior to submission of your offer. With good representation,
common sense, and a little luck all parties can succeed in a Short Sale
Transaction.
-end-
*Note: see more info on short sale and foreclosure or repo
properties at www.realhomes.us
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