short sale steps
Hi Folks,
I just read all the short sale questions. I'm going to give an overall summary of a short sale and how to do one.
WHY DO BANKS SHORT SALE? - These are just a few of the reasons....
•Mortgage is in arrears or foreclosure.
•The property is in poor condition.
•The homeowner has hardships and cannot afford the payments.
•New homes in the area are being chosen over existing homes.
•The area or neighborhood has depreciated in value.
•The bank’s shareholders are concerned when there are too many defaulting loans on the books.
•Some banks are required to prove a loss each month… let’s help them out.
•Some banks are required to have an amount equal to or up to six times the retail value of each REO “on hand” – ouch, that hurts.
•An REO is a liability, not an ***et. Too many liabilities will cause any business to go under if not dealt with quickly.
CAN I SHORT SALE A NICE PROPERTY?-
Absolutely! As you can see, banks short sale for many more reasons that a property in poor condition.
WHAT HAPPENS TO THE HOMEOWNERS CREDIT?-
That is a good question. When you negotiate a successful short sale, keep in mind that the agreed upon price is payment in full. However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a “deficiency judgment.” If granted, this judgment will affect the homeowners and their credit report just as any other judgment. You must get the bank to agree to accept “payment in full without pursuit of any deficiency judgment.”
In addition, you need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a “1099.” The homeowners can speak with their accountant for advice. Since the homeowners have been in such duress and probably haven’t made much income, a 1099 may not adversely affect them.
WHAT ARE MY STEPS TO SUCCESSFUL SHORT SALES?-
1. Find a property owner in distress.
2. Put a deal together with the homeowner.
3. Have the homeowner sign an authorization to release form.
4. Fill out a sales contract for the amount you want to offer the bank and have the homeowner sign it.
5. Call the Loss Mitigation department at the bank.
6. Fax them your offer along with the following:
a. Your cover letter explaining why you can’t offer full price.
b. The sales contract.
c. Justifying comps of the area.
d. Pictures, if you have them.
e. A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc. are paid).
f. A hardship letter from the homeowner that mentions the dreaded word…. bankruptcy.
g. Estimated list and cost of repairs, using retail repair prices that the normal homeowner would pay for these items.
Folks, I hope this sheds some light on short sales. Check out our upcoming short sale boot camps listed here at TCI.
Dwan Bent-Twyford
Thanks Dawn! Many people seem to want to jump into short sales and they have no clue where to start...
Tanya
Hey Tanya - I hope you were not hinting at me.... I actually tried to bird dog this deal, then sub2 it, etc. the comps are just not good enough. That is the only reason we though we would read on it. If we do not help this guy---FORECLOSURE for sure!
drifter,
I was not hinting at you! I just noticed there has been a large number of people asking about short sales. I figured Dwan noticed it also and posted this to give all those that had questions a better understanding.
Trust me, if I was hinting at you, then you would know...
Tanya
p.s. Did you get my private message?[ Edited by tanya1215 on Date 03/12/2003 ]
DwanBent-Twyford,
It is always a pleasure to see you posting here at TCI, I know you have a very busy schedule, so anytime you can stop by we all appreaciate it.
I know your class here at TCI will be a great one for all those that attend.
John $Cash$ Locke
Hi Dwan,
Thanks for the steps!!! We are privileged indeed to have your expertise on the TCI board, I can't wait to take your course!!! Thanks for taking time from your buzzzzy schedule to help all here!
All the best,
Mel
Thanks for the helpful information on short sales. My question: When can a short sale be presented? My sellers are only behind 1 month. Must a nod be given first?
Thanks
Perhaps with at risk junior lienholders, and historically that may have been true with senior mortgagees. But now lenders faced with unprecedented severity of loss generally are not proactively accepting loss until the late stages of foreclosure.... hoping to defer realized losses while trying to convince the public (and investors) they are in good shape. My $.02
[ Edited by TheShortSalePro on Date 12/14/2007 ]
That is not true. I am in the late stages of several short sales with little or no delinquency. Mark my words, in 2008, new legislation will punish lenders for their foreclosure rates, so they have every incentive to write off the bad debt through a short sale.