Creating a Successful Short Sale Package - Debra Allen, ABR, GRI, e-PRO, TRC, ASP

Debra Allen

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Debra.Allen@pruaz.com | Phone: 480-797-4080 | Fax: 480-467-4950

Basic Contents of a Short Sale Package

Declining home prices are great for buyers, but for highly leveraged sellers who bought in the last few years , falling home values can mean they owe more on their mortgages than the home's current appraised value. Other sellers may find themselves unable to meet higher loan payments as adjustable-rate mortgages and other "creative" loans re-balance to a higher monthly payment. If you're a sellers who is in one of these difficult situations, you may have to scramble to get help to sell your home. One increasingly widespread option is a so-called short sale.

The following is a basic outline of what you want to include in a successful Short Sale package:

Cover Letter
Authorization to Release Information
Sellers Hardship Letter 1 Page signed and dated
Seller's Financial information – most banks have a form for this however I use a standard form initially with all sellers.
Supporting Financial Information:
- 2 years w2's
- 2 months pay stubs
- 2 months bank statements
Supporting Hardship info – for example HOA liens, medical statements, disability statements
Repair Estimate for the property – if you can develop a relationship with a contractor for this it adds credibility
Comps for the property
Contract
Net Sheet / HUD 1
Additional information that may be asked for:
- The first mortgage holder may ask for a payoff amount from the 2^nd
- The second mortgage holder may ask for a payoff amount from the 1^st
- Initial Title Report

Cover Letter

The cover letter should be clear and concise giving the needed information to the bank. The information that I include is an overview of the homeowner's situation, what they owe on the property, what it is really worth and mention the amount of the needed repairs. I also state what my offer to the bank is a good offer. I conclude my cover letter with all of my contact information and state that I hope we can work together to resolve this issue for the homeowner.

Authorization to Release Information

I have a standard Authorization form that I use and in most cases this works fine. There are a few banks that require their own form for this.

Seller's Hardship Letter

I typically ask my sellers to make this at least a page long. The goal of this letter is to simply have the homeowner explain their situation to the bank. This will include key items such as job loss, divorce, health issues, medical issues, etc. If the seller is considering bankruptcy you can have them include that, however it typically doesn't scare the bank into acting faster.

Seller's Financial Information

The bank really wants to know what is the inflow and outflow that the seller has each month and what other expenses and assets do they have. I have two standard forms that I have my seller's fill out, personal information and financial information. I also have a standard authorization form that the Seller fills out in order for me to speak to their Lender.

In most cases these forms will work, however there are times that the bank will request that the homeowner complete the standard forms that they issue.

Supporting Financial Information

These items are typically the same required by a borrower when applying for a loan:

Last 2 years W2's 1040
most current 2 months pay stubs
most current 2 months bank statements
Financial worksheet

I always tell my sellers that in order for the bank to evaluate considering taking less than what is owed on their property they need provide the same type of information they did when they applied for a loan, however they are now showing they can't do this financially at this time.

Supporting Hardship Info

In order to paint the full picture to the bank of the homeowner's situation it can help to provide additional documents showing the hardship. This can include medical bills, accident reports, layoff notice, etc. Please be very detailed .

Repair Estimate For The Property

Providing the bank with a detailed repair estimate from a reputable contractor will assist greatly in getting your short sale accepted. The bank doesn't want to own property and especially not property that needs a complete overhaul. Showing this by presenting what needs to be done and the cost is very helpful.

Comps For The Property

You definitely want to do your homework and provide the bank with at least 3 to 5 comps of properties in the area that have sold in the last 6 months. In doing this you want to try to get as close to the subject property that you can and ensure that you provide the lowest comps that you can. I have found that it is also helpful to be able to show the number of days on market and any and all down payment assistance or seller concessions given in the sale.

Investors

As an investor most of the time when working a short sale your goal is to purchase that property in some form. This could be a purchase for your personal portfolio, a fix-n-flip or even a double closing. In order to do this you will need a Realtor that has experience with Short Sales.

Net Sheet/ HUD 1

Banks want to see how much money they are going to net with your offer. Providing a Net Sheet / HUD 1 prepaired by your Title Company with your offer will provide the bank with the numbers they need to see – what will we get !

Additional Information

Typically if a bank requires additional information they will let you know what it is. The most common that I have seen so far is the request for the payoff amounts from the other lien or mortgage holders on the property.

If you are working with a homeowner with an FHA or a VA loan then you will have to include additional forms with your short sale package.

VA

If the homeowner has a VA loan then they can apply for a Compromise Sale Package – this package can be found at http://www.vba.va.gov/ro/roanoke/rlc/va-forms-warehouse.html#CompSale

Short Sale -

Short Sale is when the lender agrees to accept less than what is owed for full payoff of the loan. Typically, Lenders will only consider Short Sales from their borrowers who need to sell their home because they can no longer afford to keep the payments current and are experiencing financial hardship. Many lenders will postpone or delay the Foreclosure Sale and give you some time to sell your house, if you initiate the Short Sale process with them as far in advance of the Trustee Sale Date as possible.

There are Tax Implications or Penalties you need to know about the deficiency that the lender will take on the loan.

You MAY also be responsible for the loss. Depending on your situation and state, you may be responsible. Deed in Lieu of Foreclosure - In a deed in lieu of foreclosure, the lender agrees to release the debtor from any liability on the loan itself. This agreement is usually reached only when the debtor transfers his or her property to the name of the lender. I looked at the Wells Fargo investor guidelines regarding short sale and it is viewed as a foreclosure due to the fact that the original note obligation was not fulfilled. If the person is going to obtain future conventional financing - at least 4-years must have elapsed since the foreclosure and they must show that they have re-established good credit (no lates). On FHA loans the time frame is 3 years, but regardless of the type of loan, they must show that they have re-established themselves credit wise.