SHORT SALE Presented by: Josefina M. Serrano Mission College: RLEST091 Instructor: Mr. Frank Diaz

What is a Short Sale?  A Short Sale is a proceeding where the mortgage borrower can no longer afford the monthly payment on the mortgage and decided to sell the property for less than the appraised value thereby avoiding a foreclosure.  Providing the seller’s lender(s) is accepting a discounted payoff to release an existing mortgage

Things to consider in a Short Sale  When lenders agree to do a Short Sale in Real Estate, it means the lender is willing to accept less than the total amount due, however not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose.

 Be aware that the seller will need to be in default, to have stopped making mortgage payments, before a lender will consider a short sale.  The seller might have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value.  As a Real Estate Agent we must always remember that we cannot give legal or tax advise.

 An appropriate statements: “as a Real Estate agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences.  Be aware that the IRS will consider debt forgiveness as a taxable income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid.  In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim”.

Step by Step Handling a SHORT SALE  Determine whether your clients can qualify for a Short Sale  Gather all mortgage statements  Write a hardship letter signed by the borrower to be mailed or faxed to the lender.  Write an authorization letter signed by the borrower to be mailed or faxed to the lender. Lenders typically do not want to disclose personal information without written authorization from the borrower.  Include the following on the letter: - Property Address - Property Address - Loan Reference Number - Loan Reference Number - Borrowers Name - Borrowers Name - Date - Date - Agent Name & Contact Information - Agent Name & Contact Information  Call the lender and advise that you are representing their borrower on a short sale. You may need to make a half dozen calls before you find the person responsible for handling short sales. You do not want to talk to the Real Estate short sale or work out department, you want the supervisor’s name or the individual capable of making decision.  Ask the lenders for their requirements. Different lenders may have varying requirements.

Step by Step Doing a SHORT SALE  Gather all mortgage statements  Write a hardship letter signed by the borrower to be mailed or faxed to the lender.  Call the lender and advise that you are representing their borrower on a short sale. You do not want to talk to the Real Estate short sale or work out department, you want the supervisor name or the individual capable of making decision.  Ask the lenders for their requirements. Different lenders may have varying requirements. Documents that lender will or may ask: - Paystubs- Tax Returns - Hardship Letter- Agent Authorization Letter - Bank Statements- Comparative Market Analysis - Bank Statements- Comparative Market Analysis - Purchase Agreements- Proof of Income & Assets - Purchase Agreements- Proof of Income & Assets  Once a lender approved the short sale (can be orally or in writing) you can now list the property. Price the property at least within the comparables. In most cases the lender will not price the property. you can now list the property. Price the property at least within the comparables. In most cases the lender will not price the property.  Make sure that you indicate on the listing that offer and commission are subject to the lenders approval.  If you have an offer, fax them to the lender as soon as possible together with the required documents, in a short sale time is always of the essence.

 You can continue accepting offers unless told by the lender to stop accepting subsequent offers.  Advise the selling agents that it may take a while before a lender will respond to an offer (very important).  When submitting an offer, it must accompany a pre- qualifying letter from the new buyer’s lender.  Open Escrow either by you or the selling agent.  In most cases once a lender respond, they will only give you 2 weeks to close the transaction, it is very important that you work closely with your selling agent and that he understands the process.  Once the buyer’s loan is completed, funded and recorded, Escrow Company will disburse the funds accordingly.  In this case, your client (seller) do not get any of the proceeds since the property was purchased by the new buyer less than the amount owed.

Sample letter to be sent to the lender December 1, 2007 December 1, 2007 OpenCountry Home Loans Subject Property: OpenCountry Home Loans Subject Property: 1234 Somewhere Street 1234 Showme Lane 1234 Somewhere Street 1234 Showme Lane Simi Valley, Ca Los Altos, California Simi Valley, Ca Los Altos, California Attn: Short Sale Department: Attn: Short Sale Department: My mortgage payments on both the 1 st & the 2 nd has now totaled to almost My mortgage payments on both the 1 st & the 2 nd has now totaled to almost $7, a month since the adjustment on my interest rates started. I can no $7, a month since the adjustment on my interest rates started. I can no longer continue the payments financially. I have contacted a Realtor in the longer continue the payments financially. I have contacted a Realtor in the neighborhood to assist me on possibly selling my house thru short sale. I neighborhood to assist me on possibly selling my house thru short sale. I I rather do that, than go into a foreclosure. I rather do that, than go into a foreclosure. I am asking your permission so I can proceed with the short sale. I have also I am asking your permission so I can proceed with the short sale. I have also granted permission to my realtor to communicate to you in my behalf. Below granted permission to my realtor to communicate to you in my behalf. Below is the contact information of my realtor. is the contact information of my realtor. If there’s anything that I can help to expeditiously facilitate the sale, please If there’s anything that I can help to expeditiously facilitate the sale, please call me or communicate with my realtor. call me or communicate with my realtor. Realtor Information: Realtor Information: Name : Josefina M. Serrano Name : Josefina M. Serrano Company: United Capital Group Company: United Capital Group Phone : (408) Phone : (408) Fax : (408) Fax : (408) Sincerely, Sincerely, My Beauty My Beauty Loan # Loan #

Things to Consider  As part of the negotiation, you might ask that the lender not to report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate the request.  You can also ask the lender not to report the discounted amount to the IRS. Lender will consider such a request if the borrower continue making payments until the property is sold and funded. Again the lender is under no obligation to do so.  Agents may take a hit on the commission. Lenders may insist on a fee reduction, make sure that you communicate this with the selling agent.  The commission received will be the net after all expenses are paid.  Do not expect the lenders to pay for home protection insurance or any repairs. Again, it is prudent that you communicate this to your selling agent before they even put this on the offer.  If taxes are in arrears, most likely the lender will have this subtracted from the net proceed thereby decreasing the commission.  Remember a short sale is a real estate transaction and it is binding once executed, it is very wise not to assume anything from the lender, your client and your selling agent. Always ask if in doubt.

Opportunities for the Realtors  Since more and more homeowners are defaulting on their loans, the opportunity to make money in Short Sales is enormous.  Become an expert and just make money doing Short Sales.  There are all kind of learning materials to help you become an expert.

 Short Sale is truly a new ground floor opportunity, not too many agents really understand the opportunity that exist in specializing Short Sales.  Take advantage of it and learn how to market a Short Sale.  This is a big chance of making good money.

I hope you learned something from my presentation. THANK YOU I hope you learned something from my presentation. THANK YOU