Be the hero and develop a strong reputation in your community as the ‘Make It Happen’ Short Sale expert! A successful short sale is a completed short sale. Many short sales die by attrition, the process simply becomes stalled and parties lose interest.
Your direct involvement in the process has the potential to accelerate the time frame for a short sale application and review process. Successful short sales minimize the time frame in which a short sale can be completed.
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Agents and borrowers involved in the short sale process face a tedious challenge of answering multiple questions and providing proof of income, banking and asset statements to complete the short sale package. Banks often do not staff the short sale department in a way to facilitate an accelerated process. Your attention to detail, involvement, and communication with all parties can make the difference between a successful short sale and one that falls apart. Establish your credentials as a short sale expert. In a short sale, the lender takes a financial loss, but perhaps not as large a loss as it might if the property were foreclosed. A short sale can truly create a win-win situation for all parties and your expertise has the potential to Make It Happen!
Time is of the essence for a successful short sale. Once a short sale agreement is reached it is not uncommon for the lender to require closing in as few as twenty days. Certainly, in a short sale situation, the buyer must be pre-approved and be ready to close. Financing the property with the seller’s bank could work as an advantage for the buyer. By using the homeowner’s bank’s familiarity with the property, its conditions and terms would exist. Expediting the loan application process benefits all parties – the bank resolves at delinquent account, the seller moves on with their live and the buyer finds their new home.
Authorization Letter
Obtain an authorization letter from the homeowner (typically notarized) authorizing the lender to discuss the mortgage with you. Most banks have their own letter format. This authorization will allow you to move the seller along the process and facilitate an agreement.A seller’s bank approval is mandatory in a short sale when a bank is requested to accept a sale price less than the mortgage amount. The bank must engage in their fiduciary duty to verify that a short complies with their short sale criteria as demonstrated by the homeowners’ documented hardship situation.
Qualifying Rules for HAFA Short Sale
The Home Affordable Alternative Program (HAFA) established streamlined short sale rules with incentives for the homeowner and lenders to work together to avoid foreclosure. Under HAFA, borrowers receive pre-approved short-sale terms from the lender before putting the home on the market. Lenders are specific regarding acceptable price and terms.
To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program (HAMP). Owners who do not qualify for a loan modification or miss payments during the initial loan-modification period qualify for HAFA.
Short Sale Offer in 30 Days
According to HAFA rules, lenders must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short-sale agreement. Be prepared to negotiate. The bank may reject your first offer. The Broker’s Price Opinion should identify all defects and potentially include costs to repair.
Purchase Offers Within Three Days
When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers’ mortgage pre-approval and the status of negotiations with other lien holders on the seller’s property.
Ten Days for Lenders to Deny Contracts
Finally, lenders must approve or deny the contract within ten days. HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.
Keep the Seller Involved
Keeping the seller involved in the process is crucial while the bank is reviewing the documentation. Once the seller’s paperwork has been submitted, check with the bank’s officer to be certain it is actively in line to be reviewed for completion. Ask whether there are any deficiencies in completion. For example, a divorce decree may not be certified. Step in, spend the one hour to have the document certified and pay the five-dollar fee, if this will move the process forward!
The seller’s paperwork represents the foundation of the short sale. The bank must confirm the seller is unable to pay the difference between the home’s market value and the bank’s loan amount and cannot remain in the home. The seller’s financial condition will be scrutinized to determine these facts with supporting documentation that can at times be tedious in terms of having the right documentation and the right forms properly completed and signed.
A signed sales contract contingent upon the lender’s short sale approval should be signed by both parties with a specific purchase price. Banks generally consider short sales when the homeowner has a 90- day delinquency in mortgage payments.
Sellers are required to document the circumstances including certified copies of divorce filings, evidence of job loss, delinquent accounts, utility shut-off notices, car repossession paperwork, last two years’ tax returns, recent pay stubs, and recent bank statements.
Broker’s Price Opinion
In a short sale situation the BPO must provide the evidence that market conditions would prevent the seller from reaching an agreement to sell the home at a price that would satisfy the loan. Short sales are always ‘as is’ sales.
It is important to list and document the deficiencies associated with the home that would negatively impact value. These factors could include a home painted in garish colors, stripped or badly damaged flooring, and other defects. The longer a lender holds a property, the more costly the property becomes to the holder, and vacant properties deteriorate rapidly.
Photos quickly demonstrate the issues and can be associated with costs to repair.
In foreclosure situations the lender typically must make these repairs.
The settlement statement prepared by a closing agent outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property. The statement’s information can be entered onto a HUD-1 settlement statement to show the final, negative result at closing.
Sellers may one day be your Client
Be everyone’s hero. Remember the seller may be your client one day. Suggest that the seller attempt to negotiate with the lender to minimize the damage to the seller’s credit scores during this process. Be sure this agreement is documented in writing. In most credit reports the seller’s loan will appear on the report as “Paid” with a notation “settled for less than originally owed.” Your goal is to have this credit line appear simply as “Paid” without notation. Armed with knowledge of the process, the particular bank’s short sale criteria, and an ability to move the process forward, you can make a short sale successful while earning a well-deserved community reputation as the Short Sale expert.