PRESENTED BY STACEY ALCORN ANDREW ARMATA 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 1 HAVE 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 “3 RD PARTY” AKA THE BANK YOU ARE NEGOTIATING WITH.
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 3 RD 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 the paperwork 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.
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
1099 Disclosure Explains to seller that taxes may be due!
Mortgage Forgiveness Handout Explains 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.
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 1-866-880-1232 Short Sale Fax 1-888-491-4947 Home Retention Department 1-800-669-0102 call to open Short Sale after faxing Letter of Authorization Fax 888-491-4947 or 805-520-5019 Foreclosure Dept 1-800-669-6650 Homeowner update financials 1-800-669-6650 (Home Retention Dept) Email format Firstname.Lastname@bankofamerica.com Bank of America/Countrywide Instructions To Sellers Agents.pdf Bank of America Approval Letter.pdf BOFA Approval 2.pdf BofA 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!
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 4 Check 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
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 longer The 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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