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Short Sale Basics
 

Short Sale Basics

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    Short Sale Basics Short Sale Basics Presentation Transcript

    • SHORT SALE WORKSHOP PRESENTED BY P3 COACHING
    • What is a short sale? 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.
    • Can a Realtor Negotiate a Short Sale for a Seller? 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.
    • Know What You Are Getting Into 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.
    • 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.
    • So You have a Listing that’s a Short Sale. Now What? STEP 1 HAVE THE SELLER SIGN THE LISTING CONTRACT
    • Inputting into MLS -WHEN THE PROPERTY GOES INTO MLS BE CAREFUL HOW YOU DISCLOSE THE COOPERATING COMMISSION.
    • - 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! -DON’T FORGET THAT YOUR COMMISSION RATE MUST BE APPROVED BY THE “3RD 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 3RD PARTY APPROVAL (That only applies to the offer – not the cooperating commission)
    • STEP 2 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.
    • Many lenders will negotiate prior to an offer coming in on the property and some will preapprove 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.
    • The Short Sale Package 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.
    • Most Important 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.
    • Liens Against the Property 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)
    • 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.
    • Patriot Act - 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
    • Privacy Agreement Explains the office privacy policy to the seller
    • 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.
    • FINANCIAL STATEMENT -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.
    • Other Documentation the Seller Should Provide -2 YEARS TAX RETURNS -2 YEARS W2S -2 MONTHS SAVINGS & CHECKING STATEMENTS -PROOF OF STOCKS, BONDS, 401K -ONE MONTH’S PAY STUBS
    • Financial Documentation 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
    • Financials 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.
    • IN ADDITION TO CLIENT FINANCIAL DOCUMENTATION YOU WILL ALSO WANT TO COLLECT PROOF OF ALL DEBTS AGAINST THE PROPERTY
    • 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
    • Why do we need such detailed info regarding 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.
    • 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.
    • 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.
    • Step 3 What happens once the seller has provided all of the paperwork?
    • 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!
    • SOME REMINDERS -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 -Listing Contract -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
    • Why you Should NOT prepare the HUD 1 or Net Sheet Let’s say you prepare an estimated net sheet and you guess at taxes owed, lien balances, commissions, etc.
    • 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.
    • For More Information on Distressed Property Sales Make Sure to Sign Up Today for an important designation.