It's been discussed, blogged, taught...and it doesn't hurt to revisit it again.
If it appears that the only available option to the seller is to sell the property as a short sale, it is extremely helpful to prepare him on what to expect: what is a short sale, how to qualify for a short sale, what is the process, timelines, how to prepare his property for sale, and forms he needs to complete.
The seller is already in distress and will not be in the best frame of mind. So it helps when a listing agent walks him through the various pieces of information we need to submit to the lenders, and why it is important to provide a complete short sale package.
What constitutes a short sale package?
- Letter of Authorization - signed by the seller that authorizes the lender to convey information to the lisitng agent or the agent's designate reagrding the loan
- Loan Information - signed by the seller that provides the name of the lender, contact numbers, address, loan number, balance of the loan, and if a notice of default was already filed. A separate form is required for each lender
- Loan payment coupon --- one for each lender, showing most current mortgage statement or current balance
- Hardship letter -- the more detailed the better. Indicate the reason(s) for the default, when the hardship started
- Seller's personal financials -- this will take time, but this is necessary to provide background info on the seller's finances, current obligations, and ability to meet those obligations. Required are:
- Financial statement showing income and expenses --- include everything that seller pays for (household expenses for food, utilities, car payments, insurance, child care if applicable, etc) and sources of income (salary, etc)
- Two months' most recent statements for all bank accounts and brokerage accounts EXCEPT information on retirement accounts
- Two months most recent pay stubs or other forms signifying sources of income
- Two years most recent income tax returns
INCLUDE Property information
- Listing Agreement showing the proposed listing price
- CMA of recent sales in the neighborhood. If there's a chart showing the declining prices, include that witn your CMA to justify the price
- Summary of repairs. If inspections were done that can validate a lower price, such as pest report that shows a high $$ estimate for repairs, include the estimate
- Copy of the MLS posting to show how it appears on the MLS. if you have it posted on other sites, include the list and the links, and copies of the posts, provide those too, to show how aggressively you're marketing the property.
- Your own BPO (broker's price opinion) --- don't wait for a BPO done by someone else. Position yourself as the subject matter expert. It's your listing, after all. Submit your version. It will be good for comparison when the lenders order the BP
When to submit the short sale package?
Although most lenders say they won't open a file until there is an offer, lenders differ in their policies. I've submitted packages BEFORE receiving an offer, and received the name/number of someone I can follow up with. The seller can also call the lender(s) and provide the short sale package once contact is made.
What to include when an offer is received
Most lenders will want the best and highest offer, and may only want to see the top two offers. Be sure to include:
- Complete offer with all the necessary signatures
- Preapproval letter for the buyer
- Proof that the buyer can complete the transaction
- HUD statement showing buyer and seller estimates
Remember that most lenders will approve a short sale only as a last resort to foreclosure for one or more of the following reasons:
- Borrower’s insolvency
- The proposed purchase price is more than the lender would be able to sell the property after foreclosing on the loan
- The value of the property has decreased to an amount that is below the loan balance due to local and national economic conditions
- The property was refinanced at a higher value based on an inflated property appraisal report
- The property is in such a physical condition that it is not financially feasible for the lender to put it into a marketable condition.
And throughout this process, do everything you can to market the property. The objective is to get the best possible offer to make it possible for the lender to accept the offer and approve the short sale. Keep the distressed property owner infomed. Brace him for a long wait.