short sale basics
TRANSCRIPT
PRESENTED BY
P3 COACHING
SHORT SALE WORKSHOP
A SHORT SALE IS WHEN A HOMEOWNER HAS A MORTGAGE
AND THE AMOUNT OF THAT MORTGAGE IS HIGHER THEN THE VALUE OF THE HOME. IN SOME CASES, THIS SHORTAGE RANGES BETWEEN $50,000-$100,000 IN
NEGATIVE EQUITY.
What is a short sale?
ABSOLUTELY! IT’S A MATTER OF CALLING THE LENDER OR LENDERS (WHEN TWO
MORTGAGES ARE INVOLVED) AND SUBMITTING ALL OF THE PAPERWORK TO
THEM AND FOLLOWING UP.
Can a Realtor Negotiate a Short Sale for a Seller?
A SHORT SALE CAN BE A VERY LENGTHY AND TIME CONSUMING ENDEAVOR.
LENDERS WHO ARE ULTIMATELY GOING TO ACCEPT LESS THEN WHAT THEY ARE OWED
HAVE VERY STRICT GUIDELINES AS TO WHAT THEY WILL ACCEPT FOR PAPERWORK
TO APPROVE THE SHORT SALE. THESE LENDERS ALSO REQUIRE CONSTANT AND ONGOING FOLLOW UP SINCE THERE ARE HUNDREDS OF THOUSANDS OF SHORT SALES BEING NEGOTIATED AT ANY ONE
TIME.
Know What You Are Getting Into
There are attorneys and debt negotiating firms that will negotiate a short sale for you, but many will charge an up front fee to the seller
as well as a percentage of the negotiated pay off (1-2%)
Since many sellers do not have the additional money to pay the 1-2% they rely
on the bank to pay that on their behalf. Often the bank has a capped percentage
they are willing to pay all parties (including you) so if they are paying a debt negotiator that may mean that you receive
a reduced commission.
Whether You Decide to Use a Short Sale Company Or Not
this presentation will give you all the tools you need to negotiate a short sale
correctly.
STEP 1HAVE THE SELLER SIGN THE LISTING
CONTRACT
So You have a Listing that’s a Short Sale. Now What?
-WHEN THE PROPERTY GOES INTO MLS BE CAREFUL HOW YOU
DISCLOSE THE COOPERATING COMMISSION.
Inputting into MLS
- If you disclose in MLS that you are paying 3% to cooperating brokers you
have to pay that, no matter what (even if the lender agrees to a lesser
amount)
-DON’T FORGET THAT YOUR COMMISSION RATE MUST BE
APPROVED BY THE “3RD PARTY” AKA THE BANK YOU ARE NEGOTIATING WITH.
Don’t Forget!
-IF YOU PROMISE TO PAY 3% AND THE BANK THEN
ONLY APPROVES A 4% COMMISSION THEN YOU WILL ONLY GET PAID 1%.
ALWAYS DISCLOSE IN MLS THAT ACCEPTANCE OF
OFFERS IS CONDITIONED UPON 3RD PARTY APPROVAL
(That only applies to the offer – not the cooperating
commission)
AS SOON AS THE PROPERTY IS LISTED REQUIRE THAT THE SELLER PROVIDE
YOU ALL OF THE PAPERWORK YOU WILL NEED TO FACILITATE THE SHORT SALE
NEGOTIATING PROCESS.
STEP 2
Many lenders will negotiate prior to an offer coming in on
the property and some will pre-approve the short sale price in advance. Either way, it’s good
business to get all of the paperwork you need in
advance.
If you have a seller that is lax in getting you paperwork, this will significantly
impact your ability to sell the property.
I recommend getting all of thepaperwork you need right away or
delay listing the property until you do.
WE HAVE A VERY DETAILED CHECKLIST OF PAPERWORK THAT THE SELLER MUST PROVIDE. IF THE SELLER PROVIDES
EVERYTHING LISTED ON THE CHECKLIST, NORMALLY THERE IS NOTHING
ADDITIONAL THAT THE BANK WILL REQUIRE.
The Short Sale Package
WHAT IS MOST IMPORTANT IS THAT YOU FIND OUT FROM YOUR SELLER WHAT
LENDER OR LENDERS ARE HOLDING LIENS AGAINST THE PROPERTY. IF THE SELLER
DOES PROVIDE THE COMPLETE PACKAGE WE REQUEST, WE WILL FIND THIS OUT RIGHT
AWAY.
Most Important
WHAT COULD HAPPEN IF YOU AREN’T AWARE OF ALL THE LIENS AGAINST THE
PROPERTY?
YOU COULD SPEND MONTHS NEGOTIATING A SHORT SALE ON
ONE MORTGAGE ONLY TO FIND OUT PRIOR TO CLOSING THAT A SECOND
ONE IS OUTSTANDING
Liens Against the Property
THAT WOULD MEAN THAT IT’S BACK TO THE DRAWING BOARD. YOU’D HAVE TO
START FROM SCRATCH NEGOTIATING WITH BOTH LENDERS.
(LATER ON IN TODAY’S PRESENTATION WE WILL TALK ABOUT HOW TO NEGOTIATE
WHEN MULTIPLE LIENS EXIST)
Liens Against the Property
How Do You Protect Yourself from finding out late in the game that more then one
lien exists against the property?
1. Tell the seller to give you copies of all outstanding mortgage statements.
2. Do a registry of deeds search yourself.3. Require the seller to provide you with a copy of a tri-merged credit report within 30 days of your starting the short sale
process.4. Work with a real estate attorney who can do a preliminary title search for you.
What Paperwork is required on a short sale?
WE’VE PREPARED THE HANDY CHECKLIST FOR YOU TO USE IN PUTTING A DETAILED PACKAGE
TOGETHER.
BY CALLING THE LOSS MITIGATION DEPARTMENT OF THE BANK(S)
RIGHT AWAY YOU MAY FIND THAT SOME OF THIS PAPERWORK IS NOT
REQUIRED.
Let’s Take a Look at What Paperwork is required and
why
Disclosures
There are a series of disclosures that we advise you to have the seller sign as
part of the short sale process.
Patriot Act
- Verifies identity as part of the Homeland Security Act
Many lenders require this disclosure be signed so have it as part of your short sale package.
- You should verify the seller’s information of a valid license or i.d.
Authorization to Release-This gives YOU the ability to negotiate on the sellers
behalf
Privacy AgreementExplains the office privacy policy to the seller
1099 DisclosureExplains to seller that taxes may be due!
Mortgage Forgiveness HandoutExplains to seller that taxes probably won’t be due!
Mortgage Forgiveness
Direct Clients to: IRS.GOV
SEARCH TERM: Mortgage Forgiveness Debt Relief Act
STOP ACKNOWLEDGEMENT
This form explains to the seller all of the items they should and shouldn’t do once a short sale is in process.
FINANCIAL STATEMENT
-Make sure the client fills this out accurately! If you fill it out for them you are opening yourself up to liability.
-Make sure the client signs it.
-Make sure they include ALL expenses.
-2 YEARS TAX RETURNS-2 YEARS W2S
-2 MONTHS SAVINGS & CHECKING STATEMENTS
-PROOF OF STOCKS, BONDS, 401K-ONE MONTH’S PAY STUBS
Other Documentation the Seller Should Provide
WHEN IT COMES TO PROVIDING THE FINANCIALS IT’S IMPORTANT THAT THE SELLER PROVIDE
EVERYTHING ON THE CHECKLIST. IF ONE ITEM IS MISSING IT MAY RESULT IN WEEKS OF
ADDITIONAL WAITING TO GET THE SHORT SALE COMPLETED
Financial Documentation
WHAT THE LENDER IS LOOKING FOR WHEN IT COMES TO THE FINANCIALS
IS WHETHER OR NOT THE SELLER HAS THE ABILITY TO PAY SOME OF
THE SHORT SALE OUT OF HIS OR HER ASSETS
Financials
ADVISE THE SELLER THAT IT IS FRAUD TO HIDE ASSETS OR INCOME FROM THE LENDER. ALSO, TYPICALLY, A LARGE
AMOUNT OF FUNDS IN A RETIREMENT ACCOUNT SUCH AS A 401K WILL NOT
AFFECT THE LENDER’S DECISION SINCE THIS MONEY IS NOT CONSIDERED LIQUID.
Financials
IN ADDITION TO CLIENT FINANCIAL DOCUMENTATION
YOU WILL ALSO WANT TO COLLECT PROOF OF
ALL DEBTS AGAINST THE PROPERTY
-MOST RECENT MORTGAGE STATEMENT FOR ALL PROPERTIES AND ALL MORTGAGES
-ANY CORRESPONDENCE FROM THE LENDER REGARDING THIS MORTGAGE
-COPY OF WATER/SEWER BILLS-COPIES OF ANY RECENT COURT
JUDGMENTS
Debts Against The Property
WE HAVE TO GIVE THE BANK(S) PROOF OF HOW MUCH THEY WILL WALK AWAY WITH AFTER THE
SALE IS COMPLETED. WITHOUT DETAILED INFORMATION ABOUT ALL DEBTS AGAINST THE
PROPERTY WE CAN’T GIVE DETAILED INFORMATION TO THE BANK(S) WHICH WILL
RESULT IN A DELAYED CLOSING.
Why do we need such detailed info regarding debts against
the property?
WE WANT TO KNOW IF THERE ARE MULTIPLE MORTGAGES ON THE PROPERTY.
WE WANT TO KNOW HOW FAR BEHIND THE SELLER IS IN PAYMENTS
WE WANT TO KNOW IF A CREDITOR HAS PUT A LIEN ON THE PROPERTY.
Debts Against The Property
LAST… You MUST require your seller to provide a detailed
Hardship Letter
-Make sure it’s from your seller.-Make sure it’s from the heart.-Handwritten is fine.
What happens once the seller has provided all of the
paperwork?
Step 3
Contact the lender or lenders and request the Loss Mitigation
Department
Sample Contact Info for Bank of America
Short Sales 1-866-880-1232Short Sale Fax 1-888-491-4947Home Retention Department 1-800-669-0102 call to open Short Sale after faxingLetter of Authorization Fax 888-491-4947 or 805-520-5019Foreclosure Dept 1-800-669-6650
Homeowner update financials 1-800-669-6650 (Home Retention Dept)
Email format [email protected]
Bank of America/Countrywide Instructions To Sellers Agents.pdfBank of America Approval Letter.pdf
BOFA Approval 2.pdfBofA Credit Line SS Application.pdf
The Loss Mitigation Department will ask you to fax over the
authorization which gives them permission to speak with you.
Most lenders will advise you to call back 48 hours after faxing
the authorization.
When you do speak to the Loss Mitigation Department ask them
to fax you the list of required documents for starting a short
sale.
Some lenders will only mail that package to the seller. In that
case you would notify the seller to forward the package to you
immediately
If you have completed the short sale checklist provided earlier with the seller then you will
most likely have all the documentation you need to
submit to the bank(s).
Some banks will not review your package until you have an offer. If that is the case, don’t submit the package incomplete – wait
for the offer.
READ THE BANK(S) SHORT SALE PACKAGE IN DETAIL AND PROVIDE EVERYTHING!
SOME REMINDERS
-If there are multiple banks contact all of them for packages.
-If the bank(s) loss mitigation department does not require an
offer, submit everything for a short sale pre-approval.
Most lenders will not open a short sale file until there is an
offer on the property.
Therefore, you will normally wait for an offer prior to submitting the short sale
package.
AGAIN…Even if you’re working with a bank that requires an
offer prior to submitting paperwork, please get all of the paperwork from your seller up
front. You don’t want to find out 3 months from now that your
seller is uncooperative on getting paperwork.
How do I Price a Property if I don’t know what the bank will
accept?
Most banks will accept an offer if it’s Fair Market Value.
YIKES… AN OFFER!
SO… You have the seller disclosures… you have the seller financial statements… and NOW You have an offer. What’s Next?
Step 4Check Out Our Easy Realtor Checklist for putting together the LAST section of our short sale package (again some lender’s won’t require all of this so read the
bank(s) short sale package first.
The Realtor Must Provide
-Listing Contract-MLS Sheet on the Property
-Purchase and Sale Agreement or offer-CMA on the property justifying the offered price
-Pre-Approval Letter for the Buyer-Purchase and Sale Addendum if the P&S has been
signed.
The Listing Contract
The listing contract must be provided because part of the expense in selling the home includes a Realtor
commission. Usually the lender will only pay 4-6% of the list price. Under a recent FNMA Announcement –
FNMA ruled that the bank may NOT negotiate the agent’s commission below 6% if that was stipulated for on the listing contract. THIS ONLY APPLIES TO FNMA LOANS THAT ARE GOING THROUGH THE
SHORT SALE PROCESS.
Market Analysis
The market analysis is key to show the lender that the offered price is
fair based on the market.
PRE-APPROVAL
The pre-approval is necessary so that YOU and the lender know that
you are dealing with a ready, willing, and able buyer.
The Offer
Make sure that the offer says “this offer is subject to third party
approval.”
Some Banks Will Require a P&S
If the bank requires you to go right to P&S then make sure you have
provided an addendum which states “Subject to Third Party
Approval”
CMA
One of the smartest things an agent can do is to submit a detailed CMA along
with the short sale package. The bank is going to do their own appraisal, but you may save time by giving the bank
the info they need in advance.
A Detailed HUD 1 Settlement
It’s EXTREMELY IMPORTANT to submit a detailed HUD 1 Settlement
Statement based on the price offered. Use a good closing
attorney and make sure they do a title search!
Some Short Sale Companies use what is called a Net Sheet
The NET Sheet is LIKE a HUD but not as detailed. GET A DETAILED HUD SETTLEMENT STATEMENT
NO MATTER WHAT!
On The HUD Sheet
-Make sure to include all past due amounts due to the bank
-Make sure to include all water/sewer fees-Make sure to include any outstanding
creditor liens-Past due taxes
-Past due condo fees
Let’s say you prepare an estimated net sheet and you
guess at taxes owed, lien balances, commissions, etc.
Why you Should NOT prepare the HUD 1 or Net Sheet
Let’s then say that the short sale is approved, the closing date is set, and everyone’s ready to go and the lender thinks they are netting $175K based on your
estimate.
Then, on the day of closing, there were additional taxes owed on the property, or a
judgment lien, or the payoff is much higher… so the lender is
only going to get $145,000
If the lender’s figures are significantly off from the Net
Sheet, then no closing will take place and the file will need to be
renegotiated!
Don’t use a net sheet.Don’t guess closing figures.
Use a competent attorney and a preliminary HUD Settlement
Statement.
You have the sellers disclosures, seller’s financial statements, proof of all debt against the
property, hardship letter, offer (or P&S) plus everything you put together on your end… so you’re
ready to submit!
Once you have EVERYTHING submit it to the loss mitigation department at the bank. They
will tell you where to submit and how on the short sale checklist
they provide.
When You Submit Make Sure to Give a Good Cover Letter
detailing everything you’ve submitted.
Ask the lender or lenders how long until the file will be
received in the loss mitigation department and then follow up
diligently to make sure it’s received.
Short sales take an average of 60-90 days… some take
longerThe key is to follow up with
the bank’s at least three times a week to check on
status.
Throughout the waiting it’s important to remind the client regularly to keep you informed
of any verbal or written communication they receive
from the bank(s).
Keep a detailed phone record of every call you make to the
bank(s). Some short sales are not successful and you want to protect yourself from litigation.
The lender will eventually contact you with either an acceptance,
decline, or counter offer.
Your eventual goal is to get an approval which will look like this:
Your eventual goal is to get an approval which will look like this:
Upon approval the bank(s) will give you a certain
number of days for which the approval is good for.
If you cannot close by the date stipulated on the short sale approval then ask for an
extension.
Once you’re approval has gone through the banks will give extensions for usually
10-14 days.
The buyer’s bank will need to have a copy of the short sale
approval letter so that the buyer’s closing attorney will
know the payoff amount.
From there on in… it’s a nice easy transaction.
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