Putting a Short Sale together - what’s with all the paperwork

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As I have mentioned in previous post about Short Sales, there are a few items that the seller will need to accumulate in order to submit a Short Sale Package to the bank. The topic about short sales have been on the tip of everyones tongues recently. In fact, most of the information has already been written, shown at seminars, posted on youtube and MySpace, but not everyone understands the process. And that is what I am trying to do for you…help you understand. Buyers and sellers feel like they are out there all alone. A knowledgeable agent can help both parties navigate through this turbulent transactions. Understanding what to expect and what is required help considerably in the short sale process.

Disclaimer; I am not a tax expert, CPA, financial planning expert, nor a lawyer. I suggest before you decide if a short sale is right for you, that you seek professional advice from your CPA, tax expert and lawyer. What I am giving you here is a peek into what could happen if this is the right choice for you.

One of the pioneers in the short sale markets is a fellow Real Estate Agent in Bonita Springs, FL, Chris Griffith. She writes often on her blog, Real Life in Bonita Springs and now writes weekly for the Naples Daily News. You can read her entire post about short sales here, but I will provide you with a few excellent excerpts from her article.

“Some buyers may not want to wait weeks or months to navigate a short sale, so to expedite a fast, successful sale, get your paperwork in order. Although your lender may have slightly different guidelines, the following items are commonly required: “

Listing contract

Sales contract

Hardship letter

2 years W-2’s or tax returns

2 months pay stubs

2 months bank statements

Recent statements for 401k, retirement, investment accounts

Financial statement listing current liabilities, assets and income information

A letter of permission authorizing your real estate professional, your attorney and/or C.P.A. to speak to & negotiate with your lender on your behalf.

As she points out, each bank has it’s own criteria and set of rules, but for the most part require the same amount of patience and paperwork. And I will close with one of her statements that everyone has to remember…

Regardless of your situation, it is still the bank’s decision as to whether to accept the short sale terms. Some find that no matter what they do, foreclosure is inevitable. But that is why it is imparative to have an experienced real estate agent working on your behalf.

March 12, 2008 · Filed Under Buyer, Frederick Foreclosure, Frederick Market Conditions, seller

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Short Sales - Managing Buyer Expectations

photo credit: liber

In my continuing effort to provide you with information about Short Sales and Foreclosures, let’s talk about the expectations from a buyer’s side. There have been many lost sales due the lack of understanding of the whole process by either the buyer or the buyer’s agent. I have mentioned before that buyers really want a deal in today’s market. For some reason they expect that deal to be in form of a short sale or a foreclosure. It might just be great deal…however, there is plenty of luggage that goes along with that great deal. The process can be trying on all involved, especially if they don’t know what they are getting into.

Short Sales will test your patiences - 3rd Party approval comes from the Loss Mitigation Department (which can be understaffed) The approval can take 30-60 days. The listing agent does not have control over this.
Seller help or concessions are almost nil - Banks do not like to give out anymore money. Prepare you finances ahead of time and don’t count on getting anything back. If there is a counter to your offer price, this will most likely delay the process another few weeks for yet another approval.
They don’t accept all offers and will inadvertently drag feet for more - Chances are, while your offer is submitted for approval other offers are still coming in to the Seller’s agent. Banks know that if they have reduced and reduced, that it will get to a point that multiple offers will come in (the house is still on the market.) Your Buyer’s agent should be able to evaluate the situation. Days on market, the price change history and how does the price compare to the market value of the rest of the homes. Banks have a secret pricing formula that will ultimately accept, but keep in mind, they want to reduce their losses as much as possible. So they hope for higher than yours.
What you see is what you get - The property is being sold “As-Is” no warranties, no repairs. You can get an inspection of the property but for “Information Only.” This inspection will most likely need to be done during the “3rd Party Approval” process. Because once this is approved, they want this to close and off the books. And the sellers can wait any longer either…you might be the only hope this family has before Foreclosure. Time is of the essences.
READ THE FINE PRINT - I say this, because some banks or listing agent addendum’s have wording to the effect of this will be a Quitclaim Deed. In other words they pass title to you, but it’s not necessarily a clear title. Clear title means you own it free and clear of past problems. You won’t get any Title Insurance on this property either. The risk is too high. Maybe there was a HELOC taken out on the property for $50,000 and it was not registered prior to closing…guess who just bought themselves a lien? Yep, you did.
Again, can’t stress the Patience part enough. To help with this, make sure your agent writes in an “Out” for you. His broker’s lawyer should have something written up to allow the buyer to back out of the contract prior to 3rd Party Approval. I know mine did.
Last advice, the offer should be clean, clear and complete. If it is unorganized and missing items, this will only create unnecessary delays. I would also suggest that is your best offer or reasonably close…see above about multiple offers, you might not have the chance to haggle a counter offer.

This is by far not the complete handbook on Short sales, but it is a peek in to the process. This process is sometime unique to each of the banks that hold the note. Do your homework and make sure you have a knowledgeable agent on your side. Short sale and foreclosure properties might not be the best deal on the block if you have to do $10,000s of worth of repairs to it.

Now go find your dream home.

The picture above was created using Photodropper plugin.

February 27, 2008 · Filed Under Frederick Foreclosure, Frederick MD Real Estate

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What should a seller expect in a Short sale

We started talking about Short Sales last week and I said we would break it down for the seller and the buyer. The Short Sale transaction can be frustrating for everyone involved. I think most of the frustration comes from expectations not being met. The short sale is not your every day real estate transaction. This is relatively new territory for most real estate agents and definitely a new venture for the seller. This should be one of your last resorts. Talk to your bank. You might be able to renegotiate your mortgage. Again, back to my point banks don’t want to own real estate, they just don’t realize it yet. They are going to fight you tooth and nail to keep the current condition and hope you find a way to pay. A well trained real estate agent in foreclosures and short sales will be able to assist you in this process. Again I want to repost my disclaimer.

Disclaimer; I am not a tax expert, CPA, financial planning expert, nor a lawyer. I suggest before you decide if a short sale is right for you, that you seek professional advice from your CPA, tax expert and lawyer. What I am giving you here is a peek into what could happen if this is the right choice for you.

There are a few things that you should be prepared to do before venturing into a short sale transaction. The bank has to deem your situation worthy of a short sale. Remember, they are going to ultimately take a loss on this. If they approve, they will pass this short fall onto you as a 1099 at closing. The government sees this as income to you and expect you to pay taxes on it. (Tax laws are changing on this regularly, check with your Tax preparer) You might not have to anymore.

Your agent will be needing a copy of a few things from you to help streamline the whole process.

Authorization to talk to you lender(s)
Most recent mortgage statement.
Most recent tax return.
Two most recent pay stubs.
Bank Account Statement(s)
A Hardship letter written in your own words.

The banks will want to see these items in order to consider your request. If there’s a second mortgage, most likely both will have to approve the short sale. Remember you agent will do their best to get the approval, but there’s no guarantees that they will accept it. It is not uncommon for one or the other lender to force it to foreclosure. The loss mitigation department sometimes have a mind of their own. They have secret formulas that they use to determine which route is more beneficial to the bank.

Your sellers agent will submit this again with another pile of documents when an offer comes through. It makes it easier on the Loss Mitigation Officer to see everything at one time (again or maybe for the first time) They have hundreds of these request coming across their desk monthly. The more your agent is organized, the quicker the response time to the sale approval. I say quicker with a little tongue and cheek. The approval process could take anywhere from 30-60 days. You don’t need any more delays than that. Especially if the foreclosure process is closing in on you. Buyers and Buyer’s agent need to be aware of this. We’ll talk about their expectations next week.

This is an emotional process, your agent should be able to help keep things in perspective and work through the hiccups of the transaction. Ultimately, you want to get this property off your books. So you can regain control of your life.

February 13, 2008 · Filed Under Frederick Foreclosure, Frederick MD Real Estate, seller

7 Comments

What’s all this talk about Short Sales

Short Sales, Bank Owned, Foreclosure, Bankruptcy…all start with one problem; Finances or the lack of funds to overcome the current and future expenses. Who hasn’t had some type of financial issues in your life? Unfortunately, these are some of the more extreme financial solutions. With foreclosures on the rise, short sales have become an option to relieve some of that burden.

Disclaimer; I am not a tax expert, CPA, financial planning expert, nor a lawyer. I suggest before you decide if a short sale is right for you, that you seek professional advice from your CPA, tax expert and lawyer. What I am giving you here is a peek into what could happen if this is the right choice for you.

Foreclosure is the final action that a bank takes to recover assets to cover the mortgage at which a homeowner promised to pay. There are other alternatives to foreclosure. One of the biggest problems with deterring foreclosure; Homeowner denial.

How many empty promises were made to the collection agency?

How many times has the phone rang and you didn’t answer it?

How many notices from the bank went unopened into the garbage?

For some reason it is our human psyche to ignore it and it will go away. THIS IS THE WORSE THING YOU CAN DO. Let me tell you a secret; Banks don’t want to own real estate. Now the catch-22, they don’t realize that either. You would think that they would want to help you before you start to have problems in today’s economy and housing situation. I have heard many stories that the bank wouldn’t even talk to the homeowner until they were at least one month behind on their payments. So, I guess you have to hurt your credit to fix your credit. (that is not my advice, that is just my reasoning.)

What is happening quite too often now is that homes have depreciated anywhere from 5-15% since 2006. (prices are actually that same now as they were in 2005 according to the January 2008 Housing report for Frederick County) What you have now is a mortgage that is worth more than the property is actually valued. This is creating problems with refis too. Some are looking to refinance their mortgage to help lower the payments which is great. The interest rates haven’t been this low for a long time. But now the problem, the appraisals are not matching up with what is owed on the property. In some cases you have homeowners that bought their home with no money down which means after all the charges, the loan was more than the purchase price. Simple banking math; you don’t pay much on the principal to lower your debt for the first few years only interest (even on 30 yr fix loans.) Now, if the homeowner tries to sell the property, the amount they owe is more than the market will pay. Hence the birth of the short sale. What happens now, the bank has to approve the sell of your property, because now they are looking to take a loss on your mortgage. This can be a tedious and nerve racking process for all involved. In the end the bank still might to decide on foreclosing on the property. They might feel this will yield them more money.

Now a shortsale doesn’t always relieve you of your financial burden. Banks might request that you pay back the difference between the sale price and the mortgage price or they may not. If you are relieved of the difference, it is still considered as income by the government and could be subject to taxation. Either way, it is much less than having the whole mortgage hanging over your head. This might not be the right choice for you or the only solution that is out there for you, but there are solutions. You need stop avoiding the banks…that is the worse thing you can do. A REALTOR educated on short sales can help show you options.

I will be back next week to talk about what to expect in a short sell as the seller and as the buyer.