When you fall behind in your mortgage payments, you run the risk of having your lender foreclose on you. That means you lose your home, property, everything, and end up with a very damaged credit rating that could mean you will have troubles buying a house, renting a car or even getting cable television for at least the next 10 years! This is where a short sale comes in very handy.
Short sales are ideal for when you want out of your house and need to sell fast, before foreclosure. You'll need to talk to your lender and get them to accept a short sale, which basically means they agree to accept less than the owed amount of money. In order to convince a lender that this is a good idea, you will need to cut back on your own spending and try to find a real estate agent who can give you a fairly low commission, making the lender more willing to work with you on this.
Make sure you talk to the supervisor in the lending company. Stay away from any underlings, as this can not only slow the process, but end up giving you mixed information. Go directly to the person who is in charge and who can make the decisions on whether or not to let you do a short sale on your home. This may take some work on your part, but it's worth it, since you may get the runaround otherwise.
Once you have contacted the person in charge of short sales, you will need to submit a letter of authorization. This gives the lender permission to release your personal information. The letter of authorization should include the date, your name and address of the property to be sold, as well as the loan reference number and real estate agent contact information.
The next step is to submit a preliminary net sheet that outlines how much you expect to sell the house for, as well as all outstanding loans, fees that will be incurred via the real estate agency and any late fees. If you are confused by this, talk to your lawyer or real estate agent about the costs that will be incurred.
You will also need to submit a hardship letter, letting the lender know exactly why you are in this financial situation. Preferably, you've had an illness or medical issue or lost your job, since they probably won't be too sympathetic if you lost your money gambling.
Other paperwork to hand over to your lender include proof of income and assets as well as proof of income statements. You need to prove that you are honest and aren't hiding large sums of money from the lender. After that, it is a matter of finding a buyer for your short sale and completing the sale successfully, provided you receive permission from the lender to do a short sale.
Short sales can be the ideal way to get rid of the problem of foreclosure. Provided you have a good excuse for not being able to pay your mortgage, you should be able to get permission to pay less than the original loan amount and save both face and your credit rating.
Although I often say that a short sale is a long buy theres a lot of money to be made in doing short sales. If you focus on them, Im sure youll become successful but youll eventually get a seller that owes more than the property is worth and is behind in payments. In this situation, lenders are sometimes willing to accept less than the amount owed.
Your first step is to obtain written authorization from the borrower (seller) to discuss loan information with the lender. Next, contact the LOSS MITIGATION department. Negotiating a short sale with the lender is a difficult process because its extremely difficult to find a bank officer who has the authority to accept a discount. Be patient and explain to everyone what information you need to proceed. Like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and bouncing around to several automated voice mail systems. Once you get in touch with the right person, the negotiating begins. To save yourself time in the future, make sure to get this persons direct telephone number and other contact information.
From the lenders perspective, a short sale saves them a lot of money due to the extra costs and employee burdens associated with the foreclosure process. Your job as the investor is to convince the lender that theyll fare better by accepting your offer now and cutting their losses as quickly as possible.
The lender will need every detail of the deal between you and the borrower. Specifically, the lender wants to know the property worth. The lender will generally hire a local broker or appraiser to evaluate the property. You can also submit your own appraisal or comparable sales. Youll want to offer as much negative information about the property as possible. Include some relevant information about the neighborhood, with pictures of the closest rundown properties around. You should include a contractors bid for repair estimates, which should be the highest bid you can obtain ethically!! Remember, pictures speak volumes!
The lender will also ask for financial information on the borrower. The borrower must prove that hes in dire financial straits and cant afford the payments. The borrower must show he has no source of income or assets to repay the loan. The borrower should submit a hardship letter, which is a sob story about their financial trouble. This may require a little help on your part. Dont lie! Just paint a picture that doesnt look good.
Finally, the lender wants to see a written contract between you and the borrower. The lender wants to make sure that the borrower (seller) isnt walking away with any cash in their pockets. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the net cash to the borrower is the exact amount of the short sale amount to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies wont prepare one in advance of closing. As an alternative, you could prepare your own HUD-1 statement and write preliminary across the top of it.
Dont be surprised if your bid is rejected at first. Lenders arent emotionally attached to properties; so they arent as likely to give you the deal of the century. Many short sales fall through mainly because a Brokers Price Opinion (BPO) comes in too high. You cant pull the wool over a lenders eyes. If the property isnt in need of serious repairs, its unlikely that youll be able to convince the lender that the property is worth a lot less than the appraised value
Both Seb Frey & Ben Needles are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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