Short Sale 104

Short Sale Package to submit to the Lender

• Authorization to release information
• Fully signed purchase contract with addendums
• Buyer's pre-approval certificate from Bank of America
• A copy of the escrow deposit
• Preliminary HUD 1
• Current listing agreement with addendums
• Listing history
• MLS property print out
• Property market analysis
• Hardship letter
• Seller's financial statement
• Last 2 years tax returns
• Last 2 bank statements
• Last 2 paycheck stubs

Another helpful hint for you is to make sure and send in ALL documents at once. Even if you have already sent over a authorization to release info letter and the seller has sent the lender their financial statement, once you have a contract send in a COMPLETE package, even if some of the information has already been sent. Make sure to put your loan number on all pages. Your job is to make it as easy as possible for the lender to accept your contract. They are working 100s of files make yours one of the easy ones.

Short Sale 103

Short Sales Negotiation Process

With the current real estate market, short sales are here to stay. Lenders WANT to do short sales. A successful short sale cuts losses and keeps the lender from owning a declining asset. Here're a few thoughts on taking control of the process situation from the get go.

• With a short sale we are submitting CONTRACTS, not offers, to the lenders. We are not asking them to accept an offer, we are asking them to accept a "short" payoff so a contingency can be removed from the CONTRACT.
• The lender is NOT a party to the Contract. The Lender do not control the purchase price and the commission. They control over how much they are willing to accept as a payoff. If the payoff is too high then a solution needs to be found. The solution may be to have the seller sign a promissory note, increase the purchase price or lower the expenses of the deal.
• If the Lender asked the Seller to sign a promissory note to pay the difference in losses, an Agent can negotiate the amount of this note downward or to make it go away. The Lender always ask for a promissory note to be signed when the seller can afford to make payments.

Short Sale 102

My clients and friends often ask me questions concerning about Short Sale and Forclosure so I thought it is time to clear some of the concerns regarding Short Sale and Forclosure.

1. What is my exposure for a deficiency judgement?
In other words, “can the Lender sue me and get judgment to collect for losses not paid off in the Short Sale or Foreclosure?" My understanding is that on a short sale if the lender agrees to take the amount offered then the seller shouldn't have to pay the difference. The Foreclosure is the one where the bank can come after you for the difference. Please consult with your legal expert.

2. How will my credit be affected?
In general terms, credit wise it is always better to do a short sale than a foreclosure. A short sale results in the mortgage actually being paid off, which reflects positively compared to a forclosure. A completed foreclosure will do much more damage and lower your credit score tremendously. Fannie Mae Announcement 08-16 states that it can affect your credit for 2 years after a short sale and 5 years after a foreclosure.

3. What are the Tax Ramifications?
According to the IRS, if you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. Fortunately, Mortgage Debt Relief Act of 2007 forgives home owners' debts who are short sale their PRIMARY residence. This Relief Act of 2007 applies to debt forgiven in calendar years 2007 through 2012 so you have plenty of time to take this tax relief advantage.

4. Do I need to miss a payment to start a Short Sale?
No, you do not need to miss a mortgage payment to start a Short Sale. You can work with a Broker to get a Short Sale Parkage and to list your house for sale.

Short Sale 101

These days, you would have heard a lot about short sales or going short in the news media. But what is a Short Sale?

A Short Sale is when you need to sell your property but the amount owed exceeds the value of the property and you are asking your lender to accept a “short” payoff so you can sell and they can avoid the expense of a foreclosure.

For example: You bought your house in 2005. You paid $550,000. You carry a mortgage of $500,000. You can no longer afford to keep the house because of a legitimate hardship. You MUST sale or you will be foreclosed on.

The property is now only worth $400,000 (Market Value). Fortunately, you have a qualified Buyer willing to pay Market Value. After the expenses involved with selling the property there will only be $380,000 left over to pay the lender.

So you either have to bring $120,000 to closing or ask the lender to accept a “short” of $120,000 ($500,000-$380,000=$120,000). If the lender agrees, you have just completed a Short Sale.

In order to request a Short Sale from your Lender, you must have a hardship. A hardship is anything that makes it where you can not afford the payments on your house. A hardship may be the result of:

• Divorce
• Job loss
• Reduced income
• Disability
• Military duty
• Failed business

One of the key documents related to a short sale is the Hardship Letter. Whatever your hardship may be you will need to write a hand written letter telling your lender about it. This outline will help you prepare your hardship letter.

• First Paragraph: Explain what you want.
  We are requesting that you approve us for a short sale of our loan with your Company. We are no longer able to make the payments and have been trying hard to sell the property. We love our home but due to circumstances beyond our control we are no longer able to pay for it.
• Second: Describe your hardship.
  What led to your current financial problems and caused you to miss mortgage payments? What caused your hardship? Remember you are trying to get your Lender to accept a loss.
• Third: What you have tried to overcome your hardship.
  Have you been to counseling? Have you been job hunting? Are you cutting back on your expenses? Have you been making mortgage payments on your credit cards?
• Finally: Provide your contact information.
• Let them know they are free to contact you BUT you should ask them to contact your Broker. Sign and date the letter.

In the meantime, if you have a property that needs to be sold as a Short Sale, please contact me at 408-835-7743 or at alan@i2realty.com.