Creating a Successful Short Sale Package
I am often asked by other investors new to the short sale process… “What do I include in my short sale package?”
I personally think that this is a great question and is a key starting point for investors new to short sales --- where do I start? What do I need to include in my short sale package?
Knowing exactly what to include and having a system in place to ensure that you create a successful package to submit every time will greatly improve your chances of a successful short sale. Basic Contents of a Short Sale Package The following is a basic outline of what you want to include in a successful short sale package:
The cover letter should be clear and concise giving the needed information to the bank. The information that I include is an overview of the homeowner’s situation, what they owe on the property, what it is really worth and mention the amount of the needed repairs. I also state what my offer to the bank is. I conclude my cover letter with all of my contact information and state that I hope we can work together to resolve this issue for the homeowner.
Authorization to Release Information
I have a standard Authorization form that I use and in most cases this works fine. There are a few banks that require their own form for this. GMAC will require that you use their form and it must be signed and notarized and the original must be sent back in.
Seller’s Hardship Letter
I typically ask my sellers to make this at least a page long. The goal if this letter is to simply have the homeowner explain their situation to the bank. This will include key items such as job loss, medical issues, divorce, health issues, etc. If the seller is considering bankruptcy you can have them include that, however it typically doesn’t scare the bank into acting faster.
Seller’s Financial Information
The bank really wants to know what is the inflow and outflow that the seller has each month and what other expenses and assets do they have. I have two standard forms that I have my seller’s fill out, personal information and financial information.
In most cases these forms will work, however there are times that the bank will request that the homeowner complete the standard forms that they issue.
Supporting Financial Information
These items are typically the same required by a borrower when applying for a loan:
Supporting Hardship Info
In order to paint the full picture to the bank of the homeowner’s situation it can help to provide additional documents showing the hardship. This can include medical bills, accident reports, layoff notice, etc.
Repair Estimate For The Property
Providing the bank with a detailed repair estimate from a reputable contractor will assist greatly in getting your short sale accepted. The bank doesn’t want to own property and especially not property that needs a complete overhaul. Showing this by presenting what needs to be done and the cost is very helpful.
Comps For The Property
You definitely want to do your homework and provide the bank with at least 3 to 5 comps of properties in the area that have sold in the last 12 months, preferably the last 6 months. In doing this you want to try to get as close to the subject property that you can and ensure that you provide the lowest comps that you can. I have found that it is also helpful to be able to show the number of days on market and any and all down payment assistance or seller concessions given in the sale.
Contract
As an investor most of the time when working a short sale your goal is to purchase that property in some form. This could be a purchase for your personal portfolio, a fix-n-flip or even a double closing. In order to do this you will need a contract.
I have found that a generic contract 1-3 pages works great. I always include my company name/ and/or assigns as the buyer and I also always include the following clauses: o Buyer Shall be entitled access to the property to show partners, lenders, inspectors, contractors and other interested parties prior to closing o Buyer is purchasing “AS IS” o Contingent on the mortgage holder(s) accepting a short sale o Contingent on a clean title search being performed for liens and/or other judgments against property Providing a contract shows the bank that you are serious and want to purchase the property.
Net Sheet
Banks want to see how much money they are going to net with your offer. Providing a Net Sheet with your offer will provide the bank with the numbers they need to see – what will we get. I have found a great tool that I use for generating a preliminary net sheet to submit with my offers – this tool is EasyHUDit is a membership site that allows you to generate all of the net sheets or hud1’s that you need.
Additional Information
Typically if a bank requires additional information they will let you know what it is. The most common that I have seen so far is the request for the payoff amounts from the other lien or mortgage holders on the property.
If you are working with a homeowner with an FHA or a VA loan then you will have to include additional forms with your short sale package.
FHA
The application to participate for FHA can be found at http://www.hudclips.org/sub_nonhud/html/pdfforms/90036.pdf and the Counseling Certification can be found here http://www.hudclips.org/sub_nonhud/html/pdfforms/90038.pdf
VA
If the homeowner has a VA loan then they can apply for a Compromise Sale Package – this package can be found at http://www.vba.va.gov/ro/roanoke/rlc/va-forms-warehouse.html#CompSale
I personally think that this is a great question and is a key starting point for investors new to short sales --- where do I start? What do I need to include in my short sale package?
Knowing exactly what to include and having a system in place to ensure that you create a successful package to submit every time will greatly improve your chances of a successful short sale. Basic Contents of a Short Sale Package The following is a basic outline of what you want to include in a successful short sale package:
- Cover Letter
- Authorization to Release Information
- Sellers Hardship Letter
- Seller’s Financial information – most banks have a form for this however I use a standard form initially with all sellers (an example can be found here)
- Supporting Financial Information:
- 2 years w2’s
- 2 months pay stubs
- 2 months bank statements
- Supporting Hardship info – for example HOA liens, medical statements, disability statements
- Repair Estimate for the property – if you can develop a relationship with a contractor for this it adds credibility
- Comps for the property
- Contract
- Net Sheet
- Additional information that may be asked for:
- The first mortgage holder may ask for a payoff amount from the 2nd
- The second mortgage holder may ask for a payoff amount from the 1st
- Initial Title Report – I have had one bank ask for this
The cover letter should be clear and concise giving the needed information to the bank. The information that I include is an overview of the homeowner’s situation, what they owe on the property, what it is really worth and mention the amount of the needed repairs. I also state what my offer to the bank is. I conclude my cover letter with all of my contact information and state that I hope we can work together to resolve this issue for the homeowner.
Authorization to Release Information
I have a standard Authorization form that I use and in most cases this works fine. There are a few banks that require their own form for this. GMAC will require that you use their form and it must be signed and notarized and the original must be sent back in.
Seller’s Hardship Letter
I typically ask my sellers to make this at least a page long. The goal if this letter is to simply have the homeowner explain their situation to the bank. This will include key items such as job loss, medical issues, divorce, health issues, etc. If the seller is considering bankruptcy you can have them include that, however it typically doesn’t scare the bank into acting faster.
Seller’s Financial Information
The bank really wants to know what is the inflow and outflow that the seller has each month and what other expenses and assets do they have. I have two standard forms that I have my seller’s fill out, personal information and financial information.
In most cases these forms will work, however there are times that the bank will request that the homeowner complete the standard forms that they issue.
Supporting Financial Information
These items are typically the same required by a borrower when applying for a loan:
- 2 years w2’s
- 2 months pay stubs
- 2 months bank statements
Supporting Hardship Info
In order to paint the full picture to the bank of the homeowner’s situation it can help to provide additional documents showing the hardship. This can include medical bills, accident reports, layoff notice, etc.
Repair Estimate For The Property
Providing the bank with a detailed repair estimate from a reputable contractor will assist greatly in getting your short sale accepted. The bank doesn’t want to own property and especially not property that needs a complete overhaul. Showing this by presenting what needs to be done and the cost is very helpful.
Comps For The Property
You definitely want to do your homework and provide the bank with at least 3 to 5 comps of properties in the area that have sold in the last 12 months, preferably the last 6 months. In doing this you want to try to get as close to the subject property that you can and ensure that you provide the lowest comps that you can. I have found that it is also helpful to be able to show the number of days on market and any and all down payment assistance or seller concessions given in the sale.
Contract
As an investor most of the time when working a short sale your goal is to purchase that property in some form. This could be a purchase for your personal portfolio, a fix-n-flip or even a double closing. In order to do this you will need a contract.
I have found that a generic contract 1-3 pages works great. I always include my company name/ and/or assigns as the buyer and I also always include the following clauses: o Buyer Shall be entitled access to the property to show partners, lenders, inspectors, contractors and other interested parties prior to closing o Buyer is purchasing “AS IS” o Contingent on the mortgage holder(s) accepting a short sale o Contingent on a clean title search being performed for liens and/or other judgments against property Providing a contract shows the bank that you are serious and want to purchase the property.
Net Sheet
Banks want to see how much money they are going to net with your offer. Providing a Net Sheet with your offer will provide the bank with the numbers they need to see – what will we get. I have found a great tool that I use for generating a preliminary net sheet to submit with my offers – this tool is EasyHUDit is a membership site that allows you to generate all of the net sheets or hud1’s that you need.
Additional Information
Typically if a bank requires additional information they will let you know what it is. The most common that I have seen so far is the request for the payoff amounts from the other lien or mortgage holders on the property.
If you are working with a homeowner with an FHA or a VA loan then you will have to include additional forms with your short sale package.
FHA
The application to participate for FHA can be found at http://www.hudclips.org/sub_nonhud/html/pdfforms/90036.pdf and the Counseling Certification can be found here http://www.hudclips.org/sub_nonhud/html/pdfforms/90038.pdf
VA
If the homeowner has a VA loan then they can apply for a Compromise Sale Package – this package can be found at http://www.vba.va.gov/ro/roanoke/rlc/va-forms-warehouse.html#CompSale
Comments(0)
I think that this is good information as to the mechanics of the SS.
Generally the lender will have a packet or list of requirements to be met and you will do well if you submit a complete file to them.
The single most important part of getting a good discount on a SS is to be present at the BPO, make sure the agent sees all the faults and documents them. Additionally since they are paid only $50 on average for the BPO you should have a very neat and professional repair estimate which you will give to them as well as good apples for apples comps (low of course) so that they don't have to waste their time pulling them and will use yours.
Using these techniques I average 40K discounts on first mortgages on houses under 170K.
Stockpro
You are very right - influencing the BPO is one of the single most valuable parts in your negoiations with the bank. If you can get the BPO to come in low then you have a good shot of getting a great price.
As you indicate they are only paid about $50 per BPO - providing them with the comps you have as well as repair estimates makes it easier for them and sways them closer to the price you need.
Thanks for adding the comment on the BPO.
Stefanie Blackburn
http://www.resuccesslink.com
Thanks for adding the piece on influencing the BPO. This is critical in order to get the property at the price you need. The agents doing the BPO are paid very little and if you can help them do the job by supplying repair estimates and comps it provides a strong case.
Stefanie Blackburn
http://www.resuccesslink.com