1. 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
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2. 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
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3. 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.”
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4. 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
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5. Short-Sale Payoff Application
• Application provided by lender
• Real estate professional may have obtained this in advance of putting together short-sale submission package
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6. Seller’s Hardship Letter
• Application provided by lender
• Real estate professional may have obtained this in advance of putting together short-sale submission package
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7. 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
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8. 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
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15. 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.
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16. 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
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17. 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, or 2009 will not be treated as income
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