2. The Short-Sale Package In this module: • Components of effective short-sale package • Common results from short sale • Mortgage Forgiveness Debt Relief Act of 2007 2-1

Components of Short-Sale Package • Short-sale proposal letter • Borrower’s signed short-sale payoff application • Seller’s hardship letter • Seller’s financial information • Supporting financial information • Supporting hardship information • Repair estimate for the property • CMA • Marketing history, showings, and feedback • Purchase contract signed by buyer and seller • Written proof of buyer’s ability to purchase property • Certified escrow instructions • HUD-1 settlement statement • Preliminary title report 2-2

Components of Short-Sale Package • Remember: > There can be multiple loans and you will need to repeat this process for each lender > “It takes more documentation to get out of their mortgage than it took them to get it in the first place.” 2-3

Proposal Letter • Should include: > Overview of homeowner’s situation > What they owe on property > What it is really worth > Amount of needed repairs > What offer to bank is > See Figure 9 2-4

Short-Sale Payoff Application • Application provided by lender • Real estate professional may have obtained this in advance of putting together short-sale submission package 2-5

Seller’s Hardship Letter • Application provided by lender • Real estate professional may have obtained this in advance of putting together short-sale submission package 2-6

Seller’s Financial Information • Financial statement can be constructed list of assets and liabilities: Assets > Real estate > Stocks, bonds, mutual funds > Bank accounts > Personal property > Retirement accounts Liabilities Real estate loan(s) Personal loans Credit card debt IRS liens Judgments Lawsuits 2-7

Supporting Financial Information • Typically the same information as for borrowers applying for a loan: > Pay stubs > W-2s and/or tax returns > Bank statements and credit reports 2-8

Supporting Hardship Information • The following are helpful to provide complete picture of borrower’s hardship: > HOA liens > Medical bills > Disability statements > Unemployment benefits or status > Divorce decree 2-9

Comparative Market Analysis • Create CMA using most current comparable sales • Note: if CMA is too far below broker price opinions (BPOs), lender may view entire short-sale package in negative light 2-10

Marketing History • Provide complete history of showings, feedback, and advertising • Highlight data such as: > Average time on market > # of short sale and REO listings > Price trends > Market absorption rate/months of inventory > Recent economic data 2-11

Repair Estimate for Property • Providing lender with detailed repair estimate from reputable (licensed) contractor will assist in getting short sale accepted • Most lenders prefer to sell “as is” and have buyer make needed repairs 2-12

Contract and HUD-1 • Provide lender with a copy of purchase contract • All supporting documents, including the HUD-1 settlement statement and buyer’s preapproval letter, should be attached 2-13

Common Results from Short Sales • Lien is released and: Seller is forced to carry remaining debt on payment plan Seller is forced to liquidate other assets Lender sues for deficiency Lender reports loss as a “charge off” or “collection” to credit bureau Lender forgives remaining indebtedness 2-14

Common Results from Short Sales Lender ignores contract Lender refuses to approve contract as written and agreed to. Lender may indicate net proceeds they require for approval of short sale. 2-15

Recourse and Non-Recourse Loans • If seller has non-recourse loan the lien holder has no ability to seek compensation for amount forgiven in short sale • If seller has recourse loan, lien holder has ability to force seller to repay debt 2-16

Mortgage Forgiveness Debt Relief Act of 2007 • Prior to this law, forgiven debt was considered taxable income • Under this law, up to $2 million of debt forgiven on taxpayer’s principal residence in 2007, 2008 or 2009 will not be treated as income 2-17