10 Short Sales questions and tips

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Here are 10 frequently asked short sales made questions which are incredibly useful especially if you are just getting started or contemplating quick sales as a means to acquiring pre-foreclosures.

1. What occurs on the seller’s credit rating when they permit an investor to short sell their property?

What typically takes place is the loan will show up as “paid” on their credit report; even so there will probably be a notation that says “settled for less than originally owed” or something along these lines. It’s additional favorable for a homeowner to small promote than to have a foreclosures on their credit report.

2. Where do you find investors for short sales?

Depending on where you live, you may see buyers who advertise with bandit signs or in your local newspaper. Call the investors directly and ask them if they’re experienced in performing short product sales and if they would be interested in working with you. Another good place is your nearby real estate investors club meeting.

3. Define a short sales?

A short selling is really a form of pre-foreclosure sale made and occurs when the mortgagee agrees to accept much less than the loan volume to avoid foreclosure. A negotiated short sale results inside a discounted buy price for the buyer. The buyer would finance the acquisition significantly the same as in any conventional realty acquisition.!. but devoid of the luxury of time.

4. Can an proprietor profit from a short sale?

The seller can’t profit (monetarily) from a pre-foreclosure short sale.!!! But you will find usually exceptions towards the rule.

5. How do bankruptcies affect the possibility of carrying out a short sale?

Most mortgagees won’t take into account a short sale if the house owner is in bankruptcy.!.why? Due to the fact negotiating a short sale made payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.

6. Can somebody tell me what paperwork do I have to include inside a short sale package?

Documents depend on the lender. Each loan company has diverse requirements. It is typical to require hardship letter, buy and sales contract, ECOR, settlement statement (HUD 1), net sheet, pay stubs, bank statements, personal financial sheet (monthly budget), amongst other things.

7. What percentage of mortgage firms send somebody out for an appraisal on a achievable short sale?

All lenders order a BPO or full appraisal of the asset prior to making their decision to accept or reject the short purchase offer. This is there only way of assessing the worth of your home.

8. How late in the pre-foreclosure procedure can you begin a short sale?

Attempt to allow a window of at least 90 days to effectuate a mortgagee approved, pre-foreclosure Short Sale made.

9. What is a Due on Sale clause?

“Due on Sale” Clause (DOS) Provision inside a mortgage or deed of trust calling for the total payoff of your loan balance inside event of a selling or transfer of title towards the secured genuine asset. A contract provision which authorizes the loan provider, at its choice, to declare immediately due and payable sums secured by the lender’s security instrument upon a purchase of all or any part of the genuine home securing the loan devoid of the lender’s prior written consent.

For purposes of this definition, a sale or transfer indicates the conveyance of authentic house of any proper, title or interest therein, regardless of whether legal or equitable, regardless of whether voluntary or involuntary, by for deed, leasehold interest with a term greater than three years, lease-option contract or any other technique of conveyance of true home interests. Standard language which states that the mortgage must be paid when a house is sold.

10. Will banks enable a short sale when the owner has some or a beneficial sum of equity?

If a asset has what the financial institution would consider a substantial quantity of equity, chances are they would take into account allowing the asset to foreclose and then reselling it closer towards the retail value. Focus on homes that don’t have much equity. Your job will be to create the fairness in the home by negotiating a successful short sale made.

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Comments (1) Sep 12 2010

Top mistakes to avoid to get your short sales approved and closed.

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Yes, these are the top mistakes to avoid in order to have your short sales approved and eventually closed as I experience them with my fellow agents who work with me on short sales.

~ Not submitting multiple offers.
My experience tells me that providing multiple offers to the lender has indeed helped to show that the agent is doing all he/she can do to get the home sold. The multiple offers will make the difference. However, the servicing lenders generally do not like them. There is a second benefit to it: if the selected buyer walks, there is another purchase contract that can carry the deal to close.

~ Not submitting a proposal.
Many short sale agents just send a complete short sale package. It is true that you must have complete documentation, but it is important to draft a full proposal, as well. Organizing your request to approve a short sale has often made the difference between success and failure with the agents.
Also, many agents still think that the servicing lender is the one who approves the short sale and that they can actually negotiate with that lender’s “negotiator”. However, most loan notes are actually owned by the SMI and either they, or an MI insurance carrier if they have paid off a claim, approve or reject the short sale.

~ Not communicating adequately with parties.
Buyers are patient to a limit. Same with Communicating cooperating agents. You may think about weekly updates to all parties, more often when things happen. You can put a password protected area in your website where buyers and all parties can review the updates. Buyers must be part of the process and be motivated to hang in there when approval takes a long time.

~ Hardship.
Not meeting the definition of “hardship”. Like a criminal case wherein each element of the criminal statute must be proved, in short sale cases the hardship letter and financial documents must prove each element necessary for a secondary market investor to render a finding of “hardship”, and approve the short sale. The hardship letter must contain certain elements, without which, the case will be rejected. Make sure to get it right in the first place because a second attempt will ruined the authenticity of the transaction.

~ The lender’s net.
That’s what will make a short sale go through or not at the end of the day. The most important reason that a short sale is not approved is not meeting the net to lender, calculating the minimum threshold percentage of the fair market value. In the past, secondary market investors utilized the short sale versus REO comparison analysis to approve or reject a short sale. However, almost all SMIs have changed over to the minimum threshold analysis. That analysis ignores the amount of the debt and focuses on proof of the current fair market value of the property. For different SMIs and even different products, there is a set minimum threshold percentage of the fair market value that must be received in order for the proposal to be approved. Many agents erroneously believe they are still using the old comparison analysis.

So, the bottom line is this:
If a proposal meets the definition of hardship and that hardship is supported by the financial documents, you do nothing to cause the servicing lender to tank the proposal, and the offer meets the net to lender minimum threshold percentage of the fair market value, the short sale will be approved and if a qualified buyer remains, the transaction will close.

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Comments (0) Jan 12 2010

Short sales document: Short payoff offer & proposal letter

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This is the short payoff offer I use when I need to present the offer and the short sale package to the lender.
You can copy/paste it and use it as you wish.

SHORT PAYOFF OFFER & PROPOSAL LETTER

Date: November 18, 2009
To: Amy Butler – Loss Mitigation Representative
Lender: Acme Bank
Loan Number: 011-12-1234
Borrower Name: John F. Doe
Property Address: 123 Main St. Miami, FL 33141
Auction Date: 1/ 12/2010

*** NET AMOUNT OF SHORT SALE OFFER TO ACME BANK $168,000.00 ***

Dear Ms. Butler:

We are submitting for your review and subsequent approval, this comprehensive SHORT SALE
SUMMARY PACKAGE pursuant to our recent telephone conversation regarding the possibility of a discounted payoff on the aforementioned defaulted mortgage loan.

We are working very closely with your Borrower to facilitate a sale of the above referenced property. We have in fact entered into a purchase and sale contract (attached). I represent the Buyer and my clients are seeking to buy the property without the need for a mortgage contingency and subject only to your approval of this short sale proposal. Inspections have been completed. This sale requires and is only contingent upon your approval of the short sale offer subsequent to your approval of our request for a discounted payoff, we can close very quickly. We guarantee a cash based closing of the transaction within 5-10 days of acceptance of our offer.

We have been given complete authorization by the Borrower to discuss the mortgage loan that is presently in default that you are seeking to foreclose. We have again included a signed Letter of Authorization executed by the Borrower, which has been previously faxed to you.
Our contract offer to the Seller, Mr. John F. Doe, is $181,000.00 which will net your bank $168,000.00 after all closing costs and expenses which you can see on the Estimated HUD Statement attached hereto.

We understand that in order for our offer to be accepted that there may be additional due diligence which may need to be completed. Should a second Broker’s Price Opinion (BPO) be necessary, or if one has never been completed, we urge you to have one completed and as we have control of the property we would like to meet with your representative to ensure a proper assessment of the scope of repairs of the subject property and a true and accurate appraisal of the estimated “AS-IS” value of the subject property.
In order to obtain the most accurate valuation, it is our belief that it is imperative that the interior of the house be viewed and that the BPO not be limited to a cursory drive-by viewing or desktop appraisal or automated valuation.

Loan Number: 011-12-1234
Borrower Name: John F. Doe
Property Address: 123 Main St.
Miami, FL 33141
Auction Date: 1/12/2010

We can provide interior access to the house to your representative and will meet with your
representative with 48 hours notice.
As an auction date is pending in the very near future, (January 12, 2010) we believe TIME IS OF THE ESSENCE in resolving this matter. We are prepared to close this transaction within 5-10 business days from receiving written notification of your acceptance of this offer or our acceptance of any counter offer that you may make in response to our offer.

If you have any questions, please do not hesitate to contact us as necessary as we stand ready to
facilitate and expediting a short sale payoff on the aforementioned loan.

Sincerely,

Your name

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Comments (2) Jan 05 2010

Real Estate agent: documents you need for your short sales.

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First of all, understand the short sales.

A short sale is a transaction that happens when a homeowner is owning more money on his/her home than what it is worth in today’s Real Estate market, and when the bank or the lender is willing to take less than what the homeowner owes.
Most of the time, that bank or lender will be able to collect more money with a short sale than if the homeowner goes into bankruptcy or foreclosure. That’s why they will be listening to short sales under certain circumstances.
For the homeowner, the short sale transaction is a better situation than going bankrupt or foreclosed. They credit will be hurt for 2 or 3 years instead of the 7+ years in a foreclosure situation.

Secondly, here are a list of documents you will need in order to prepare the short sale transaction with the bank representative:

FOR THE REALTOR:

  • ~ Signed letter of authorization from seller authorizing you to negotiate with the lender on their behalf.
  • ~ Letter of facts about the property. Everything that is wrong with the property and why it is impossible to sell it at a higher price.
  • ~ Current Market Analysis. Highlight comparable sales that reflect the lower value.
  • ~ Photographs. Remember, the photographs aren’t to highlight a charming house. Photograph evidence of damage, bad location, etc…
  • ~ Evidence of all showings and feedback. Explain to lender results and conversations you’ve had while trying to sell the property.
  • ~ Copy of listing contract/MLS Listing/MLS history.
  • ~ Current “AS IS” CMA.
  • ~ Copy of purchase contract if you have one.
  • ~ Preliminary HUD
  • ~ Make sure the seller has a detailed, tear jerking letter of hardship. See an example here
  • ~ Sales and services Quotes

Also, insert copies of the following if any:
1. Code Violations
2. Fines
3. Hearing Information regarding the maintenance of the property
4. Evidence of lawsuits the City is filing against lenders
5. Evidence of pending litigation or changes in the law
6. Insert Tenant / Landlord provisions if it helps your case
7. Evidence of the town / city’s enforcement of fines against other banks
8. Latent Material Defect
9. Sexual offenders and predators

FROM THE SELLER:

    -Two years tax returns and W-2′s.
    -Three months bank statements.
    -Pay stubs for last 30 days.
    -Detailed monthly budget.
    -All mortgages with account numbers.
    -Copy of the deed.
    -Copy of the note and/or mortgage
    -Pending bankruptcy, or other action/judgment or lis pendens.
    -Tear jerking hardship letter. See an example here

Buyers generally get a lot more house for their money in a short sale situation, because these properties are usually very competitively priced in order for the sellers to unload them before they end up in foreclosure. It’s a very good situation for them. The only downside I see is often the multiple offers situation for those short sale properties. But there are a lot of short sale properties available in the Cape Coral Florida market than in other parts of the country, so this area is the place to buy!.

So, if you are thinking of buying a short sale, here are 3 tips:

1 – Find a Realtor with short sales experience. There are many rigorous short sales and foreclosure training programs available to real estate agents, including the Certified Distressed Property Expert (CDPE) and the Short Sales and Foreclosures Resource Certification (SFR). If you wish to purchase a short sale property in Cape Coral, Florida, or anywhere else for that matter, you will greatly increase your chances of getting your deal to closing if your agent is experienced and comfortable with short sales….either through a short sales certification program, or through hard knocks experience in the field.

2 – Get pre-approved. No short sale offer will be considered without a pre-approval or a proof of funds letter. If you have not yet been pre-approved by a local lender and are not sure who to call, your real estate agent is a good source of referrals. The pre-qualification process generally takes less than 30 minutes, and can be done over the phone, however, a pre-approval takes longer but is better than a pre-qualification. Make sure you work with a local lender – today’s wild & woolly finance environment means that you greatly increase your chances of closing a deal if you use a local lender with a good reputation. All short sale offers must be submitted with a pre-approval letter, or with a proof of funds, as bank’s statements, in the case of a cash transaction.

3) Submit your highest and best offer the first time around! Lenders generally do not counteroffer….they will either say “Yes” or “No”. So if you are going to go through the process of waiting 60 days or more to hear back from the lender, you will greatly increase your chances of hearing that “Yes!” if you submit a good, solid offer with no contingencies.

Once you submit an offer that is approved by the seller, the seller has to submit your offer to their lender to see if the lender will accept the offer as well….remember, in a short sale situation the lender is agreeing to accept less than what the homeowner owes on the mortgage…..and the lender is going to do whatever they can to minimize the amount of that loss to their bottom line. Parting with their profits is not something that comes easy to lenders…..so it takes awhile to find out if they are willing to take the level of financial beating that is inherent in the amount you are offering. Sometimes the wait can be up to 90 days….sometimes much more (the amount of the wait often depends upon which lender holds the paper).

Look at the frustrating wait time as the price you pay for getting the chance to get a home you might not otherwise be able to afford.

If you want to receive listing from banks, this program will give tremendous help to get in the game as well.

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Comments (0) Dec 31 2009

Investors: what you should do during a BPO.

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Once you have sent your offer of 55% of the lowest average comparable and deducting for any repairs to the bank, the bank is going to hire a third party company to have a look at the property that is being discounted or what it is called a short sale transaction.

The following steps are what you have to consider to have a successful outcome from that third party that is doing the BPO/Appraisal.

Make yourself the contact person for the process.
When the third party company that is calling you to schedule an appointment, you want to make sure that the person on the phone knows the fact that this property is been foreclosed and do they know that it has a contract to be sold. Most of the people just want to come out and take pictures and run to the next one. They are in it to get as many done in a day as possible because they are getting paid minimal money to do this task, most of them being Real Estate agent that are not producing enough for a living. Build a rapport with them right out of the door and ask them a few questions while you have them on the phone. For examples:

Do you know that the bank is looking for a quick sale value on this home?

How long have you been doing BPO/Appraisals?
As you are listening, you are on a mission to gain information. You will be able to use this information to give you more details on how to proceed with this particular person before meeting them at the property.

How many of these inspections are you doing a day?
How many have you done in the last month/last week? And so on…

What is the name of your company/Phone #/Fax #/cell phone#?
So you can contact them ahead of time to confirm your meeting when set.
I also call some of them time to time for tips about new foreclosures.

If it is a Realtor, ask if they do a lot of REO’s.
This is a bank foreclosed home that Realtor’s like to list after they have been foreclosed on. You want to be sure on this because it will help you know how to proceed in handling the person in the field.

If it is an appraisal you are going to
You want to know this as well because an appraisal will be a little longer than a BPO. They are going to measure the property just like they did when it was purchased. They will do the size of bedrooms, how many rooms, all interior pictures, front and back pictures of the house and more…

Compiling all the right paperwork to take to the meeting at the house consist of the following:

A folder that has all information about the property
Write in big “Foreclosure” and “Working with banks and sellers to liquidate properties” on the front of the folder.

A copy of the purchase and sale agreement
You sent it to the loss mitigation department. It should be completed and executed in a time frame of 30 days or less.

A hardship letter
The hardship letter we were talking about here from the seller explaining why they are losing their home.

A repair estimate of the house
All documents supporting the value that is being offered. Made you homework here. You’ll get better at it with experience though.

Low comparable from the property
Get you comps from Real Estate agents, MLS and so on. Get the lowest 3 similar LISTED and 3 SOLD properties. The keyword is lowest here!

Articles from newspaper or online articles
Try to get newspaper articles explaining the down turn of the market or any problem of the area where the property is located. Check online local newspaper as well.

Copy of the building sketch of the property
If it is an appraisal, supply the appraiser with a copy of the building sketch of the property. This will put a smile on the appraiser face because it helps them get their job done sooner. This move will instantly put yourself as knowledgeable and therefore, your numbers as much more accurate, even if you may be a bit low :-)

The day when you are meeting them at the property
Make sure you call and confirm they are going to be on time. Be professional.

Arrive early so you have a chance to get a feel of the house
Drive by the neighborhood and look for any signs in yards. Take them down if any and remove any flyer/advertising you may have at the house. You do not want them to know what you are marketing it for. Look around the house for any new damages or negatives to point out.

When the agent gets there
DO NOT HAND them the package you have. Lay it down somewhere visible in the house (kitchen counter or on bar). Start building a rapport with them. Have a conversation about anything, something in common (have a quick look at his/her car bumper sticker. You most probably see something he/she like to talk about: pets, football team, etc…). Ask how they are doing and get a little personal.

Do not start bashing the house
As if you want a low value, it is important though that you don’t bash the property. Let them in and walk the house showing them around from behind them. That will let you read their body language. Do not get up in their face. Be nice and have a sense of humor about the meeting and that you two are in this together.

The Big Question!!
When the agent/appraiser asks who you are in this process, whenever this comes up, either on the phone in the beginning or on the way there when you are confirming the appointment, DO NOT LET THEM KNOW YOU ARE AN INVESTOR. You are just the person meeting them there to show them the house. Minimize yourself. If they ask you if you are the listing agent or the Realtor® and you are not, let them know that our company works with the seller and the bank to liquidate the property. If you are a Realtor® then answer yes I am a Realtor® but working to help the seller.

What should I wear to this meeting?
Try not to over dress or look like you are better, smarter or know more than they do. Play at their level or below. Allow them to be in control or at least think they are in control (better results). Ask them if there is anything else that they need. Include a couple of newbie’s questions about their field. Leave an impression that you know he/she is the professional here.

Getting the package in their hand.
Talk a little about the market and show them things that need repair along the way. However, be helpful not forceful. When you pass by the package pick it up and let them know you have a copy anyway. Inform them that it contains info like comps, the current purchase agreement, etc… You don’t have to tell them everything in it because they can see it for themselves. You want them to ask you for it. Let it be their idea of getting it instead of it seeming like you are forcing it in their face, you must take this type of approach.

What do you think of the value?
After the meeting, hint around about the value. “What do you think the value will come in at?” “Ballpark figure”. Come across with the seller needs to sell attitude rather than they want to sell. If the agent/appraiser will tell, that is okay.

Can I follow up with you?
Have either yourself or someone else follow up with them 24 hours after the value was done. Thank them for coming out, be polite and ask them if they have completed the value and sent it in to the bank.

Calling 24 hours later.
Start out asking them how it is going. Then ask them if they have completed any more inspections since the one they did with you. By this time you should have an idea of how well they are going to respond. Just ask what they thought the value came in at and did the value come in around the contract price.

After that, call the bank and ask if they have received the value and can they accept the offer that you have submitted. If not, ask them to call you back with the approval as soon as they get it.

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Comments (1) Dec 27 2009

Short sales documents

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There are a significant number of short sales in the Cape Coral area. And I see also a significant number or Real Estate agent that have a false idea of what is a short sale. A short sale is a Real Estate transaction where a homeowner is selling his/her property. It is NOT the lender who is selling it. The lender just takes a loss. If you are involved in a short sale transaction, here are the documents needed:

Purchase and sale agreement.
This is the contract, the accepted offer. This document shows that an owner is willing to transfer ownership of the property to a buyer, under a specific set of conditions and/or terms. The purchase and sale agreement needs to be well-executed. To be legally binding, it must be signed by all who have their name on the deed.

Hardship Letter.
The hardship letter is an important document written by a homeowner to his/her lender, explaining the reasons for being unable to continue paying the mortgage. To be effective, it must state the homeowner’s situation, show concern, and demonstrate that the homeowner is taking action for the problem to be resolved. It is even better if this letter is hand written and not very long.

Homeowner’s financial statement.
This is a document presenting all income, assets and liabilities. The homeowner and all co-borrowers must be included on this worksheet.

Latest two bank statements.
If the homeowner has more than one account, all the statements must be presented.

Latest two pay stubs if any.
If the homeowner has more than one job, all the stubs must be shown. Unemployed homeowners must present the latest available. Self-employed individuals can provide a profit and loss report.

Last two years tax returns.
Sometimes, homeowners in a foreclosure situation have missed filing their taxes. In this case, present the latest available and write a personal note to the lender explaining the situation very clearly.

Last two years W-2s.
Employers provide this to employees and the IRS every year. Provide the latest available.

In addition, if relevant and available, you may include the following list of documents. Those may be useful as well. In some instances, they are absolutely necessary.

    * Death certificate
    * Divorce decree
    * Incarceration decree
    * Bankruptcy discharge letter
    * Relief from stay
    * Proof of disability
    * Insurance claims
    * Police reports
    * Court approvals
    * Anything that may be useful

Additional Documents.
Once in contact with the lender, these two additional documents will be needed.

Listing agreement.
Lenders want to see if the property is listed or has been listed by an agent. They like to see that homeowners are serious about selling and did everything in their power to sell it, or to be out of their problem. This is also a must for real estate agent commission allowance.

HUD-1.
This is the RESPA compliant settlement net sheet. RESPA stands for Real Estate Settlement Provisions Act. It shows who gets paid what, and how much. This document shows the main thing the lender wants to know: How much the lender will get. You can get in touch with you favorite title company to have it ready as a good faith estimate.

Those are the documents needed for a short sale to be negotiated and it is important for Real Estate agent to be ready right away. That will help you, your sellers and the buyer’s agents. The more complete, the better. The degree of what is acceptable varies from lender to lender. Some lenders are more demanding than others. Have all these documents. The short sale will go a lot smoother.

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Comments (1) Dec 26 2009

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