SHORT SALESHORT SALE

Presented by: Josefina M. SerranoPresented by: Josefina M. Serrano

Mission College: RLEST091Mission College: RLEST091

Instructor: Mr. Frank DiazInstructor: Mr. Frank Diaz

What is a Short Sale?What is a Short Sale?

A A Short SaleShort Sale is a proceeding where the is a proceeding where the mortgage borrower can no longer afford the mortgage borrower can no longer afford the monthly payment on the mortgage and decided monthly payment on the mortgage and decided to sell the property for less than the appraised to sell the property for less than the appraised value thereby avoiding a foreclosure. value thereby avoiding a foreclosure.

Providing the seller’s lender(s) is accepting a Providing the seller’s lender(s) is accepting a discounted payoff to release an existing discounted payoff to release an existing mortgagemortgage

Things to consider in a Short SaleThings to consider in a Short Sale

When lenders agree to do a Short Sale in When lenders agree to do a Short Sale in Real Estate, it means the lender is willing to Real Estate, it means the lender is willing to accept less than the total amount due, accept less than the total amount due, however not all lenders will accept short however not all lenders will accept short sales or discounted payoffs, especially if it sales or discounted payoffs, especially if it would make more financial sense to would make more financial sense to foreclose.foreclose.

Be aware that the seller will need to be in default, Be aware that the seller will need to be in default, to have stopped making mortgage payments, to have stopped making mortgage payments, before a lender will consider a short sale.before a lender will consider a short sale.

The seller might have over-encumbered, owe more The seller might have over-encumbered, owe more than the home is worth, so a discounted price than the home is worth, so a discounted price might bring the price in line with market value. might bring the price in line with market value.

As a Real Estate Agent we must always remember As a Real Estate Agent we must always remember that we cannot give legal or tax advise.that we cannot give legal or tax advise.

An appropriate statements: “An appropriate statements: “as a Real Estate as a Real Estate agent, I am not licensed as a lawyer nor a CPA agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences. and cannot advise on those consequences.

Be aware that the IRS will consider debt Be aware that the IRS will consider debt forgiveness as a taxable income, and there is no forgiveness as a taxable income, and there is no guarantee that a lender who accepts a short sale guarantee that a lender who accepts a short sale will not legally pursue a borrower for the will not legally pursue a borrower for the difference between the amount owed and the difference between the amount owed and the amount paid. amount paid.

In some states, this amount is known as a In some states, this amount is known as a deficiency. A lawyer can determine whether your deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claimloan qualifies for a deficiency judgment or claim”.”.

Step by Step Handling a SHORT SALEStep by Step Handling a SHORT SALE Determine whether your clients can qualify for a Short SaleDetermine whether your clients can qualify for a Short Sale Gather all mortgage statementsGather all mortgage statements Write a hardship letter signed by the borrower to be mailed or faxed Write a hardship letter signed by the borrower to be mailed or faxed

to the lender.to the lender. Write an authorization letter signed by the borrower to be mailed or Write an authorization letter signed by the borrower to be mailed or

faxed to the lender. Lenders typically do not want to disclose personal faxed to the lender. Lenders typically do not want to disclose personal information without written authorization from the borrower.information without written authorization from the borrower.

Include the following on the letter:Include the following on the letter: - Property Address- Property Address - Loan Reference Number- Loan Reference Number - Borrowers Name - Borrowers Name

- Date- Date - Agent Name & Contact Information- Agent Name & Contact Information Call the lender and advise that you are representing their borrower on Call the lender and advise that you are representing their borrower on

a short sale. You may need to make a half dozen calls before you find a short sale. You may need to make a half dozen calls before you find the person responsible for handling short sales. You do not want to the person responsible for handling short sales. You do not want to talk to the Real Estate short sale or work out department, you want talk to the Real Estate short sale or work out department, you want the supervisor’s name or the individual capable of making decision.the supervisor’s name or the individual capable of making decision.

Ask the lenders for their requirements. Different lenders may have Ask the lenders for their requirements. Different lenders may have varying requirements.varying requirements.

Step by Step Doing a SHORT SALEStep by Step Doing a SHORT SALE Gather all mortgage statementsGather all mortgage statements Write a hardship letter signed by the borrower to be mailed or faxed to the Write a hardship letter signed by the borrower to be mailed or faxed to the

lender.lender. Call the lender and advise that you are representing their borrower on a short Call the lender and advise that you are representing their borrower on a short

sale. You do not want to talk to the Real Estate short sale or work out sale. You do not want to talk to the Real Estate short sale or work out department, you want the supervisor name or the individual capable of department, you want the supervisor name or the individual capable of making decision.making decision.

Ask the lenders for their requirements. Different lenders may have varying Ask the lenders for their requirements. Different lenders may have varying requirements. Documents that lender will or may ask:requirements. Documents that lender will or may ask:

- Paystubs- Paystubs - Tax Returns- Tax Returns- Hardship Letter- Hardship Letter - Agent Authorization Letter- Agent Authorization Letter

- Bank Statements- Bank Statements - Comparative Market Analysis- Comparative Market Analysis - Purchase Agreements- Purchase Agreements - Proof of Income & Assets- Proof of Income & Assets

Once a lender approved the short sale (can be orally or in writing)Once a lender approved the short sale (can be orally or in writing) you can now list the property. Price the property at least within the you can now list the property. Price the property at least within the

comparables. In most cases the lender will not price the property. comparables. In most cases the lender will not price the property. Make sure that you indicate on the listing that offer and commission are Make sure that you indicate on the listing that offer and commission are

subject to the lenders approval.subject to the lenders approval. If you have an offer, fax them to the lender as soon as possible together with If you have an offer, fax them to the lender as soon as possible together with

the required documents, the required documents, in a short sale time is always of the essencein a short sale time is always of the essence..

You can continue accepting offers unless told by the lender You can continue accepting offers unless told by the lender to stop accepting subsequent offers.to stop accepting subsequent offers.

Advise the selling agents that it may take a while before a Advise the selling agents that it may take a while before a lender will respond to an offer (very important).lender will respond to an offer (very important).

When submitting an offer, it must accompany a pre-When submitting an offer, it must accompany a pre-qualifying letter from the new buyer’s lender.qualifying letter from the new buyer’s lender.

Open Escrow either by you or the selling agent.Open Escrow either by you or the selling agent. In most cases once a lender respond, they will only give In most cases once a lender respond, they will only give

you 2 weeks to close the transaction, it is very important you 2 weeks to close the transaction, it is very important that you work closely with your selling agent and that he that you work closely with your selling agent and that he understands the process.understands the process.

Once the buyer’s loan is completed, funded and recorded, Once the buyer’s loan is completed, funded and recorded, Escrow Company will disburse the funds accordingly.Escrow Company will disburse the funds accordingly.

In this case, your client (seller) do not get any of the In this case, your client (seller) do not get any of the proceeds since the property was purchased by the new proceeds since the property was purchased by the new buyer less than the amount owed.buyer less than the amount owed.

Sample letter to be sent to the lenderSample letter to be sent to the lender

December 1, 2007December 1, 2007

OpenCountry Home Loans SOpenCountry Home Loans Subject Property:ubject Property: 1234 Somewhere Street 1234 Showme Lane1234 Somewhere Street 1234 Showme Lane Simi Valley, Ca 54321 Los Altos, California 12345Simi Valley, Ca 54321 Los Altos, California 12345

Attn: Short Sale Department:Attn: Short Sale Department:

My mortgage payments on both the 1My mortgage payments on both the 1stst & the 2 & the 2ndnd has now totaled to almost has now totaled to almost $7,000.00 a month since the adjustment on my interest rates started. I can no$7,000.00 a month since the adjustment on my interest rates started. I can no longer continue the payments financially. I have contacted a Realtor in thelonger continue the payments financially. I have contacted a Realtor in the neighborhood to assist me on possibly selling my house thru short sale. Ineighborhood to assist me on possibly selling my house thru short sale. I I rather do that, than go into a foreclosure.I rather do that, than go into a foreclosure.

I am asking your permission so I can proceed with the short sale. I have alsoI am asking your permission so I can proceed with the short sale. I have also granted permission to my realtor to communicate to you in my behalf. Belowgranted permission to my realtor to communicate to you in my behalf. Below is the contact information of my realtor. is the contact information of my realtor.

If there’s anything that I can help to expeditiously facilitate the sale, pleaseIf there’s anything that I can help to expeditiously facilitate the sale, please call me or communicate with my realtor.call me or communicate with my realtor.

Realtor Information:Realtor Information: Name : Josefina M. SerranoName : Josefina M. Serrano Company: United Capital GroupCompany: United Capital Group Phone : (408) 348-2951Phone : (408) 348-2951 Fax : (408) 281-9466Fax : (408) 281-9466 Email : josefina0404@yahoo.comEmail : josefina0404@yahoo.com

Sincerely,Sincerely,

My BeautyMy Beauty Loan # 11223344Loan # 11223344

Things to ConsiderThings to Consider As part of the negotiation, you might ask that the lender not to report As part of the negotiation, you might ask that the lender not to report

adverse credit to the credit reporting agencies, but realize that the adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate the request.lender is under no obligation to accommodate the request.

You can also ask the lender not to report the discounted amount to the You can also ask the lender not to report the discounted amount to the IRS. Lender will consider such a request if the borrower continue IRS. Lender will consider such a request if the borrower continue making payments until the property is sold and funded. Again the making payments until the property is sold and funded. Again the lender is under no obligation to do so.lender is under no obligation to do so.

Agents may take a hit on the commission. Lenders may insist on a fee Agents may take a hit on the commission. Lenders may insist on a fee reduction, make sure that you communicate this with the selling agent.reduction, make sure that you communicate this with the selling agent.

The commission received will be the net after all expenses are paid.The commission received will be the net after all expenses are paid. Do not expect the lenders to pay for home protection insurance or any Do not expect the lenders to pay for home protection insurance or any

repairs. Again, it is prudent that you communicate this to your selling repairs. Again, it is prudent that you communicate this to your selling agent before they even put this on the offer.agent before they even put this on the offer.

If taxes are in arrears, most likely the lender will have this subtracted If taxes are in arrears, most likely the lender will have this subtracted from the net proceed thereby decreasing the commission.from the net proceed thereby decreasing the commission.

Remember a short sale is a real estate transaction and it is binding Remember a short sale is a real estate transaction and it is binding once executed, it is very wise not to assume anything from the lender, once executed, it is very wise not to assume anything from the lender, your client and your selling agent. Always ask if in doubt.your client and your selling agent. Always ask if in doubt.

Opportunities for the RealtorsOpportunities for the Realtors

Since more and more homeowners are Since more and more homeowners are defaulting on their loans, the opportunity to defaulting on their loans, the opportunity to make money in Short Sales is enormous.make money in Short Sales is enormous.

Become an expert and just make money Become an expert and just make money doing Short Sales.doing Short Sales.

There are all kind of learning materials to There are all kind of learning materials to help you become an expert. help you become an expert.

Short Sale is truly a new ground floor Short Sale is truly a new ground floor opportunity, not too many agents really opportunity, not too many agents really understand the opportunity that exist in understand the opportunity that exist in specializing Short Sales. specializing Short Sales.

Take advantage of it and learn how to Take advantage of it and learn how to market a Short Sale. market a Short Sale.

This is a big chance of making good money.This is a big chance of making good money.

I hope you learned something I hope you learned something from my presentation.from my presentation.

THANK YOU THANK YOU