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  • Simon

    Simon 9:17 am on February 5, 2010 Permalink | Reply  

    SHOULD I PURSUE A SHORT SALE? 

    Banks are certainly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on the mortgage owed to them. If you think you are going to fall behind and become delinquent on your mortgage payment, chances are that your lender would prefer to settle the matter with you as opposed to taking the property through an expensive foreclosure.

    Keep in mind this. The bank has the intent to limit the loss on your loan. When you get a short sale accepted, the bank has made a decision the offer you submitted to them is better than taking the property through a foreclosure. The bank is VERY willing to work with you to keep any of their debts
    in a non-performing status which is what happens when a mortgage becomes delinquent.

     

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  • Simon

    Simon 9:17 am on February 5, 2010 Permalink | Reply  

    WHAT IS THE DIFFERNCE BETWEEN A GOOD AND BAD SHORT SALE CANDIDATE? 

    This really depends on the bank you are dealing with for the short sale consideration. However, you typically see a bit of a trend. As long as the hardship is REAL and on-going, so the bank believes the loan will probably go to foreclosure, it will be considered valid. The more descriptive including dates and specifics the homeowner is experiencing, the better. The hardship letter can be a very powerful negotiation tool, so make sure it’s as specific as possible.

    Below is a list of frequently accepted bank “hardships”

    * Medical reasons, Illness in family, or injury

    * Death of immediate family member or spouse associated with loan

    * Relocation

    * Job loss or income reduction

    * Divorce

    * Monthly mortgage payment increase or spike in living expenses

    * Possible threat of bankruptcy

    WHAT IS THE DIFFERNCE BETWEEN A GOOD AND BAD SHORT SALE CANDIDATE?

    Did you know that not all short sale candidates are created equal? They are not. In fact, you can waste a lot of time on dead beat sellers that care less whether or not you can help them. You want to stay as far away from those people as possible. If they don’t recognize you throwing the life saver for them to grab on and work with the solutions you provide, move on. There are too many others out there that are SCREAMING for your help. They are in need of your specialized knowledge to help quickly liquidate their property. They either do not have time or knowledge on how to successfully get a bank/lender to accept a short sale on their property. Most of the time they are approaching or in foreclosure so the clock is ticking and they need to work quickly before the property is sold at the sheriff auction. This is where your knowledge is applied.

    When distressed homeowners work with you they get peace of mind that someone is taking the ball and running with it to help them sell their house and avoid a completed foreclosure. This can have big benefits for the homeowner. A completed foreclosure compared to a short sale appearing as a “paid as agreed” on the homeowner’s credit can save them 2-3 years from reestablishing good credit. That’s a LONG time. Not to mention that you are buying them more time to find a place to move because you will be postponing the sheriff sale while the short sale is being reviewed for approval.

    Does it make better sense now?

    Why doesn’t the homeowner just list the property with a Realtor? There are many reasons but the two that stick out the most are..

    Many Realtors are not experienced in successfully completing a short sale
    Realtors want to get paid a commission and short sales home have ZERO equity. That means Realtor has to get the LENDER to pay their commissions. They don’t like risking that, so they usually shy away from homeowners without suffice equity to pay their commissions.
    Let’s now discuss “good and bad” short sale candidates.

    Which Deals Should You Pursue?

    It is important that you do not waste your time with unwilling or unmotivated homeowners/sellers. They must be ready to leave the house for you to assist them with a short sale strategy. You cannot help all homeowner’s in or approaching foreclosure. You can only help those that will be in complete compliance to your requests. You did not cause the homeowner to be in a hardship. If the short sale does not get accepted the homeowner is in no worse of a situation than before they met you. The homeowner must have a legitimate hardship. The lender will not agree to a short sale if they believe the homeowner is just avoiding making the payments because they don’t like the house anymore, upset at a spouse, want to move quickly or some other cop-out type excuse. Don’t waste time trying to assist homeowners that are not good short sale candidates. You are robbing the other people that are in desperate need of your help. Willing homeowners with legitimate hardships NEED a solution. Be a WISE servant and not a GULLIBLE fool.

    The following is a bullet point list for what my team considers ACCEPTABLE AND NOT ACCEPTABLE short sale candidates.

    ACCEPTABLE “GOOD” CANDIDATES

    • A continuing hardship that is preventing any more payments being made to the lender

    • The homeowner completely willing to work with you with no friction

    • Already behind on mortgage payments

    • Lis Pendens or Notice of Default (NOD) has been filed lender has started the foreclosure process

    • No equity and property is overleveraged having owed more on it than it is worth

    • Property needs repairs

    • More than one mortgage is owed

    • One or multiple judgments or Liens owed

    • Property is listed for sheriff sale with MORE than 10 days left to auction sale date

    UNACCEPTABLE “BAD” CANDIDATES

    • NOT in compliance to requests for documents, showing their property, signing a listing agreement etc.

    • Does not have a legitimate hardship (using some excuse to NOT pay the lender when they have the money available)

    • The property has a lot of equity and the lender would be better off foreclosing to get paid in full

    • The sheriff sale is LESS than 10 days away

    • Homeowner requests to STAY in the property

    So there you have it. If you have a homeowner who makes plenty of money to pay bills, is a pain to work with, will not respond to your requests for paperwork or wishes to stay in their house … move on. This is what our team considers an UNACCEPTABLE short sale candidate. The better candidates are homeowners that have legitimate hardships, having missed three or more payments, in pre-foreclosure, the property needs some repairs and they are looking at a sheriff sale more than 10 days away from the auction date.

    The following are some questions you would ask to determine if you have a good short sale candidate. This is assuming you have the full contact information for your client/prospect.

    What is the address of the property including city, state and zip?
    Do you have a foreclosure date pending? If yes, when?
    Can you make anymore payments to save the house?
    Do you want to SELL or KEEP the house?
    What do you owe on the house? Mo. Payments and balance?
    Do you have any other mortgages? If yes, who are they with and what do you owe?
    Do you have any other liens? If yes, who are they with and what do you owe?
    Does the house need any repairs? If yes, briefly explain
    Are you behind in payments? If yes, how many?
    Are you the owner? Is anyone else on the deed or the mortgage?
    Is the house vacant? If not is it rented or owner occupied … when could you move?
    What type of loan do you have? FHA, VA, CONVENTIONAL?
    Has anyone else tried to contact the lender on your behalf?
    Ever filed a BK? If yes, when? Was it discharged or dismissed?
    What is your goal by working with us?
    Additional Info?

     

    • feed 3:50 am on December 6, 2011 Permalink | Reply

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  • Simon

    Simon 9:15 am on February 5, 2010 Permalink | Reply  

    WHAT IS CONSIDERED AN ACCEPTABLE HARDSHIP? 

    This really depends on the bank you are dealing with for the short sale consideration. However, you typically see a bit of a trend. As long as the hardship is REAL and on-going, so the bank believes the loan will probably go to foreclosure, it will be considered valid. The more descriptive including dates and specifics the homeowner is experiencing, the better. The hardship letter can be a very powerful negotiation tool, so make sure it’s as specific as possible.

    Below is a list of frequently accepted bank “hardships”

    * Medical reasons, Illness in family, or injury

    * Death of immediate family member or spouse associated with loan

    * Relocation

    * Job loss or income reduction

    * Divorce

    * Monthly mortgage payment increase or spike in living expenses

    * Possible threat of bankruptc

     
  • Simon

    Simon 9:13 am on February 5, 2010 Permalink | Reply  

    WHAT IS INCLUDED IN THE OPTION AGREEMENT PAPERWORK? 

    In the past we used a Land Trust to tie up properties to resell via short sale, but now we use what is commonly referred as the “Option Agreement”. The reason is quite simple. We had some of our students start getting rejected by title companies using land trust method. The title company was refusing to close on the transaction to provide clear and marketable title to the END BUYER (The “C” Buyer in the (B-C) type closing) , but more on that later

    We are using the Option Agreement now because it’s a lot LESS paperwork than dealing with a land trust. It’s easier to explain and it’s more transparent so both sides feel full disclosure has been made.

    So what is an Option Agreement?

    It simply gives you the Investor the right to purchase the property for a certain period of time. The homeowner agrees to sell the property while under the time frame given for the option. There are some pretty basic documents that we use when getting a property signed up via the “Option Paperwork”.

    Here are the documents in the “Option Paperwork”

    Option to Purchase Agreement
    Notice of Option
    Addendum to Option Agreement
    Notice of Release of Option
    Affidavit of Understanding
    These other forms we get the homeowner to sign are optional, but we request them every time.

    Lead Paint Disclosure
    Property Condition Disclosure
    Let’s discuss the process so you understand it.

    You will schedule a meeting with the homeowner (after you prescreen them).
    * You can use a service like PatLive to prescreen your call and automate this process. We have used Patlive for over 5 years and they are a great service Receive a discount by using this link. http://www.PatLive.com/signup/SSF

    You will have them sign the Option to Purchase Agreement. This will give you the right to purchase the property while the homeowner agrees to sell it to you for the agreed purchase price. Now here’s a little cool benefit about using the Option Agreement. It is perfectly designed for the short sale transaction. It states in the verbiage of the agreement the offer price will fluctuate due to the property being negotiated with the bank for a short sale. That means whatever price you put on the Option Agreement with homeowner may or may NOT be the actual price you get the bank to agree to sell it.

    You set a date for the time the homeowner agrees to give you for the option period. In other words, they are giving you the option to purchase within a certain time frame. If possible, give yourself more time than less. That way you are not rushed or have to go get another agreement signed. Of course when you get the Addendum signed you can always write in an extension period here and get the homeowner to agree to automatically provide you another 3-6 months to purchase if necessary.

    Next you want to get the Notice of Option signed. This is going to be the document you go file at the county courthouse where the property presides. This document will put the world on notice that you have an equitable interest in the property. It will also show you in the title commitment once you go to the closing too.

    The Addendum to Option Agreement is something I get signed in case the bank would like to see anything extra like another purchase price agreed by both parties other than the first price on the Option Agreement. It doesn’t happen that often, but it’s better to just get it while you are there with the homeowner.

    The Notice of Release of Option is a document you will only file unless you can’t resell the property and un-cloud the title. In essence this would remove any/all equitable interest you have in the property.

    The Affidavit of Understanding spells out in PLAIN ENGLISH to the homeowner on your intent dealing with the property. You are working to liquidate the property quickly. You aren’t making any promises that you are going to buy a property with ZERO equity. You’re only purchasing the property IF the bank agrees to your offer price. You have the homeowner initial and sign it and this is your CYA (cover your assets) document…are we tracking? Look it over it is pretty self explanatory which is why I love it.

    Other documents I don’t really need to explain. They are just helpful and in some states mandatory (the Lead Paint one) for disclosure purposes for example.

     
  • Simon

    Simon 9:12 am on February 5, 2010 Permalink | Reply  

    WHAT DOCUMENTS ARE NEEDED FOR A SHORT SALE PACKAGE? 

    This is stops many investors dead in their tracks and it’s really sad. The paperwork isn’t that big of a deal. Our paperwork has been reviewed by our attorney. It works, but I always suggest you have a good real estate attorney on your team to review any paperwork that will comply with any state guidelines or laws. It’s a good idea in general to do that. I’m not an attorney and I don’t practice law.

    Keep in mind, a correctly completed short sale package (meaning all the documentation submitted in a way the bank wants it) will give you a HUGE advantage on getting your deals approved. There are some things to bring up now to make sure you are aware of on how things can get complicated if you are not careful. A short sale really isn’t that difficult to complete. The collection of the paperwork from the homeowner is actually the easiest part of the process. Where is can get a little complicated is when you start to negotiate with loss mitigator’s (bank assigned representatives that manage the short sale files).

    Let me throw out a few disclosures. Some banks do not allow the homeowner to negotiate a short sale. They much rather have a Third Party do it for them. The reason is banks want the transaction to be an “arms length” type meaning the homeowner cannot discount their own mortgage and then sell it to a relative so they can stay in the home. Also, they don’t want the homeowner to discount the property so they can stay in it at a DISCOUNTED price. You are getting very close to real estate mortgage fraud when a homeowner has that intent.

    You need to provide evidence and prove the homeowner has a continuing financial hardship. The bank is going to request proof of this by asking for the homeowners financial documents such as; paystubs, bank statements, tax returns, financial statement etc.

    In fact after completing hundreds of short sales and getting millions of dollars discounted from banks, our team has figured out submitting a complete short sale package is key for getting the fastest response to your short sale offer.

    Here is a list of documents commonly requested by the bank.

    Hardship Letter (specifically describing what, when, how of hardship; this explains the homeowners situation and should be specific as possible, usually no more than one page long and can either be typed out if handwriting is not readable, it should be a clear request why homeowner cannot make their payment, fears foreclosure and needs desperate help)
    Authorization to Release (ATR) this gives you the right to speak to the bank on behalf of the homeowner
    Two Most Recent Paystubs If the homeowner has a job you provide these, if not you provide a signed letter by the homeowner explaining to bank the homeowner doesn’t have a job
    Two Most Recent Bank Statement If the homeowner has a bank, if not you provide a signed letter by the homeowner explaining to bank the homeowner doesn’t have a bank account
    Last Two Years Tax Returns and W-2’s You only need the first 10-15 pages for each year. If the homeowner hasn’t filed taxes it can be a serious factor for a short sale consideration. Get these if at all possible
    Financial Statement This shows the bank the homeowner’s income and expenses.
    HUD 1 or Net Sheet This shows the bank how much money they will NET from the short sale and all the expenses itemized they agree paying on behalf of the homeowner
    A Purchase and Sale Agreement or Option Paperwork the bank will want to see a contract on the property to even consider the short sale. An Option Agreement clarifies you “MAY” buy the property, but the homeowner MUST SELL the property to you. It also fully discloses you intend to purchase the property at a discount and may resell it for a profit.
    Other Possible Documents The Bank May Requests
    - Bank specific documents on their letterhead they request that is signed by the homeowner
    - A listing agreement by a Realtor
    - A buyers proof of funds
    - And FHA or VA specific documentation for specific loan types
    Without proving to the bank a good reason why the homeowner cannot afford the house any longer, they will probably decline an attempt for a short sale consideration.
    *Always check with an attorney on any specific licenses you need to negotiate short sales.

     
  • Simon

    Simon 9:11 am on February 5, 2010 Permalink | Reply  

    How do I get started on a Short Sale? 

    You will need to get some documents together from both the homeowner and possibly the bank. The bank will sometimes request letterhead specific documents the homeowner will need to fill-out and return to them. However, most of the time getting started on your short sale means collecting pretty much the same type of documents (reference: Short Sale Package).

    The good way to determine exactly what the bank’s requirements are for a short sale package is to ask.

    Every single bank requires you first get an Authorization to Release Information from the homeowner so you have access the account. Then once you are authorized, you may ask for the Loss Mitigation department to inquire the requirements for a short sale. Note: Some banks may require you to use their Authorization document that is on the bank’s letterhead. But most of the time any Authorization giving you right to speak to the bank on behalf of the homeowner is acceptable.

    Here is a “short sale package” or the documents the bank requests from you to consider a short sale:
    - Authorization to Release Information
    - Purchase and Sale Agreement for the property

    - A preliminary HUD 1 Settlement Statement showing all costs to close and banks Net/payoff

    - Last two months pay stubs from the homeowner

    - Last two months bank statements from the homeowner

    - Financial Statement/Budget Sheet showing income and expenses

    - Last two years federal tax returns
    - Hardship Letter specifically describing the homeowner’s financial hardship

    Other Possible Documents the Bank May Requests

    - Bank specific documents on their letterhead they request that is signed by the homeowner

    - A listing agreement by a Realtor

    - A buyer’s proof of funds

    - And FHA or VA specific documentation for specific loan types

    Some banks will have different requirements for a short sale consideration. It’s a good idea to ask the loss mtigator that is assigned to the homeowner’s account to know the exact documents they need

     
  • Simon

    Simon 9:10 am on February 5, 2010 Permalink | Reply  

    What is a short sale? 

    A short sale is nothing more than when a lender agrees to accept less than what is owed on the original mortgage to avoid an expensive foreclosure process or even a possible bankruptcy. You are going to be dealing with the bank directly with the permission given to you by the homeowner. You are making an offer to the bank for them to consider accepting a discount for the property. For example: Let’s say a homeowner, who is facing a foreclosure auction has an existing first mortgage for $100,000. You might make an offer for $50,000. The bank’s Loss Mitigation department considers all costs, including the condition of the property, and accepts it. This is called a short sale or sometimes referred as a “short pay”.

     

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