To begin a short sale process, contact the lender and request their “short sale packet” or “workout packet”. When the packet arrives it will explain exactly what the lender wants you to present with your short sale offer. When you phone them, ask for the loss mitigation department and attempt to contact one person you can work with directly.
A complete short sale package consists of a request for, at minimum, the following:
* Application
* Sellers’ hardship letter
* Sellers’ Tax returns
* Sellers’ W-2s
* Sellers’ Payroll stubs
* Sellers’ Financial statement
* Sellers’ Bank statements
* Purchase & Sale Agreement
* HUD 1
This list will vary somewhat depending upon the lender.
Also include photos of any damage and a list from your contractor of work to be done with retail estimates for repair costs. Lenders will send their own appraisers to confirm your findings, but you want to make sure they are aware of everything a potential buyer will find wrong with the property. This packet is your opportunity to let the lender know everything it will cost for them to sell this property.
Approximate time line:
Submission of offer and complete short sale package from the seller.
* Bank acknowledges receipt — ten to thirty days
* Bank orders a BPO (broker’s price opinion) or appraisal — thirty to sixty days
* File is reviewed — thirty to sixty days
* Negotiator is assigned — thirty to sixty days
* Level II negotiator may be assigned — thirty to ninety days
* File is approved or rejected — sixty to one hundred twenty days
The Packet – At any time during this process, you may have to start over as they “lose” the packet (always send them copies, not originals, and keep a copy of everything you submit for your own files). This can cost weeks in delays. Be sure to send everything they request when you submit your packet or you could have to start over every time they ask for something you left out. In fact, if you leave out too much of what they require, your offer will be rejected. Not submitting a complete packet is the number one reason short sales are denied.
Hardship Letter – The lender will always request a hardship letter. A hardship letter tells the lender why the homeowners are not making or will no longer be able to make their mortgage payments. If a foreclosure auction is approaching, ask to extend the auction. If you have presented a legitimate package, the lender will typically extend the foreclosure date during this process.
Arrears – Some lenders are more likely to do a short sale if the homeowner is at least three payments behind on their mortgage. Once a notice of default has been recorded, banks become very motivated so you are more likely to get a short sale discount. Until that time, homeowners still have opportunity to cure the loan and make up back payments.
Discount – No matter what type of house or condition it’s in, all mortgages can be discounted. Typically, the best properties to short sale are houses needing lots of repair. Lenders tend to give a bigger discount if they see the property will be difficult to sell. Properties that are over leveraged are also prime candidates. Second mortgages are good short sale candidates because a second mortgage is typically wiped out at a foreclosure sale. Lenders with second and third mortgage position are motivated to take a short sale reduction rather than risking nothing at foreclosure sale.
Concessions – Since the bank will be taking a loss, they rarely pay for extras or any repairs. The home is typically sold “as is”. Therefore, it’s extremely important to obtain and pay for any inspections including pest, roof, sewer, septic tank, chimney or fireplace inspections. Do not waive your right to obtain these inspections, but make your offer contingent upon approving them. Buyer beware!
Remember, you must give the short sale lender time to respond. The time a short sale takes is the number one complaint about doing them. If you or your buyer have a short time frame, anything shorter than ninety days, a short sale is not your solution.
Always give the lender a time frame in which to respond after which you will be free to cancel. If the lender is under no pressure to make a decision, the paperwork will sit on a desk.
Unfortunately, you can’t always avoid problems with a short sale. Patience is key. Threatening to walk away means nothing to the bank. Your only option is to stick it out and wait, providing you truly want the home.
What experience have you had with short sales?
