More On Short Sales

The Short Sale Package

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In a Short Sale, the mortgage owed on the home is more than the home is worth.  The Owner must sell the property, either for employment or other circumstance, or they simply can no longer afford the current mortgage payment.

Additionally, when the Owner does sell their home, they cannot afford to make up the difference between the sales price of the home and what is owed to the mortgage company(s).  They will be “Short” on their Loan Payoff at closing.

The Owner requests, through the Short Sale process, that the Lender (or Lenders) accept less than the full amount owed on the property. Lenders are often willing to consider this, especially if the only alternative is to foreclose on the property, which can end up costing the Lender more in the long run.

A Short Sale will not be approved simply because the home has fallen in value, however; the Lender requires the Owner provide evidence of Financial Hardship in order to approve the Short Sale.  The “evidence” or documents required for the approval is often called the “Short Sale Package”.

Each Lender has their own version of a Short Sale Package, which may consists of a simple letter with instructions or multiple forms, which may include one or more of the following documents: Financial Statement form, a “Who’s Who” list of contacts, Frequently Asked Questions, an Authorization Letter to allow your Realtors to negotiate on your behalf and a list of financial documents you will be asked to provide.

Here is a list of commonly required documents:

Authorization Letter:  An Authorization Letter gives your Realtor permission to negotiate terms of the Short Sale with your Lender (or Lenders) on your behalf.  Of course, you are in charge of the negotiations and you instruct your Realtor on what terms you will accept, but they do the talking. The goal is always, at least initially, that the sale will be approved with no cost or future liability to the Owner.

Some Lenders have a form they require you use, while others simply need a statement signed by you and your Realtor. Many Lenders require the letter include the last four digits of your Social Security number AND your Realtor’s Social Security Number for identification purposes.  Here is a sample letter:

First National Bank

By Fax: (520) 555-1212

RE: Loan #123456789, 101 Main Street Tucson, AZ 85747

Dear Sir or Madam:

Mr. Rob Hallberg and Ms. Catherine Hallberg are Realtors representing me in the sale of my home, which will be a Short Sale transaction.  They will be negotiating any and all terms of this transaction on our behalf, subject to our written approval.

This letter authorizes my Agents to conduct full and open discussions with you regarding this transaction and my loan on the above property.  This also extends permission to First National Bank to conduct full and open discussions with Mr. & Ms. Hallberg and to release any and all information regarding this loan or Short Sale Terms to them.

This permission shall remain in force until the earlier of December 31, 2010 or the settlement of the above loan, whichever comes first.

Sincerely,

____________________________________________________________________________________

Owner’s Full Names, Signatures and Last Four Digits of SS#                       

________________________________                ______________________________________

Rob Hallberg     Last 4 Digits SS#: 1234             Catherine Hallberg         Last 4 Digits SS#: 5678

Long Realty                                                      Long Realty

10222 E. Rita Road, Suite 170                            10222 E. Rita Road, Suite 170   

Tucson, AZ 85747                                             Tucson, AZ 85747

(520) 407-8667                                                   (520) 407-8667

Homes@InsideTucsonRE.com                           Homes@InsideTucsonRE.com  

Financial Statement Form:  This form will be similar to the application you completed when you applied for the mortgage.  It will ask for the following information:

Current Income: Wages, Salaries, Dividends, Interest, Rental Income, Pensions, etc.

Current Expenses: Rents, Taxes, Alimony, Child Support, etc.

Current Debt: Charge Accounts, Mortgages, Student Loans, Other Loans

Current Assets: Checking & Savings Accounts, Investment Accounts (e-Trade, etc.), CD’s, IRA’s, 401(K)’s, etc.

Take time to be completely thorough and accurate.  If you overlook an item, chances are it will be found in a credit check and it could hold up approval of the Short Sale.

Financial Documents:  There will be a list of documents they will require. Generally speaking they will be the statements that support the items listed on the Financial Statement Form.  Here is a sample list:

Bank and Investment Account Statements: Prior two months.

Paystubs: Wages, Salaries, Pensions, prior two paystubs.

Tax Returns: Prior Two Years.

Listing Agreement: A copy of the Agreement signed with your Listing Broker.

MLS Printout: The MLS Sheet that shows the details of your property.

BPO (Broker’s Price Opinion): A Market Analysis provided by the Listing Agent.

Pictures: Lenders sometimes require current interior & exterior pictures.

Your Listing Agent will make copies of these for you.

Hardship Letter:  Many Owners find this is the hardest document to complete. Do not fear this; they are not looking for a life history.  Most letters will take one page, two at the most.  Be simple, direct, and to the point.  The details are on your Financial Statements.  Here is a brief, sample Hardship Letter:     

Dear Lender:

Four months ago I was laid off from my job and have been unable to find new employment. We have been trying to keep up with our financial obligations and have had to take money from savings in order to meet them.

Unfortunately, it does not appear likely I will be able to find comparable employment locally and can no longer afford the payments on my home.  There are too many applicants for (teaching, engineering, etc.) positions in the area and it is more likely there will be more cuts before the market changes and new jobs become available.  As a result, we have decided that our only option is to move to (Phoenix, Denver, etc.) where more positions are available. 

We have placed our home on the market, but due to the decline in prices the funds from the sale will not completely pay of our loan balance with you.  Accordingly, we will be requesting your approval to Short Sell our home.

That’s it.  The Lender only needs a short history and the facts; if they have any questions they will ask.

Preparing the Short Sale Package: Do It Now!  Start working from the above list; do not wait on a package from your Lender. They will often not send you a package until you are behind in payments and/or have a Purchase Contract.

Once you receive a Purchase Contract, you have only five days to submit the Short Sale Package.  With the stress of moving, inspections, finding documents, preparing the financial report and writing the Hardship Letter, you will be overwhelmed unless you prepare for this now. Even if two months pass and you need copies of new statements, you will know that in advance and can set these aside instead of accidentally packing them and struggling to find them later. Ditto with the Hardship Letter and Financial Statement. 

Success in obtaining quick approval of a Short Sale is all in the preparation. You must quickly provide all of the information to your Realtor for the lender to make a decision, and the faster you do that the more likely a Buyer will remained engaged in the purchase instead of quitting in frustration.

Key Points for Submitting a Successful Short Sale Package:

It must be complete.  Lenders will not look at the package until all documents are in.

It should be submitted in one, single package. Lenders will lose documents or claim they never received them so it is best to send everything in one package.

It must be accurate.  Fully disclose all financial information and the nature of your Hardship.

Do It Now!  Once you receive an offer it is too late.  Key to a successful short sale is quick approval, and nothing happens until the Short Sale Package is submitted, in it’s entirety.

Write your Loan Number on every page of every document in the upper right hand corner.  Lenders will scan the documents and this is the only way they can identify them.

Follow these simple instructions and you will be ahead of most Short Sale sellers. Timing is everything; Do It Now!

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Buying Short Sales: The Good, The Bad & The Ugly

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Short Sales & Foreclosures: A Homeowner's Perspective

Short Sales: A Seller's Overview

Pricing A Short Sale For Success

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