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What is a short sale?

What is a short sale?. Homeowner owes more on their property than the property is actually worth Bank agrees to accept less than what is owed as payment in full Foreclosure process is far more expensive than the discount the bank takes on a Short Sale. Why do banks accept short sales?.

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What is a short sale?

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  1. What is a short sale? • Homeowner owes more on their property than the property is actually worth • Bank agrees to accept less than what is owed as payment in full • Foreclosure process is far more expensive than the discount the bank takes on a Short Sale

  2. Why do banks accept short sales? • Win-win solution for all parties to the transaction • Homeowner avoids devastation of foreclosure on their record • Bank avoids time & expense of foreclosure process & holding property on books until it sells • Buyer buys property below market value & walks in with immediate equity • Realtor receives a commission for negotiating on behalf of client

  3. What is short sale process? • Varies depending on loan type Lead Qualification (via phone) Listing Appointment Short Sale Package to Bank FHAVA/Conventional

  4. FHA vs. VA/Conventional FHA VA/Conventional Short Sale Package to Bank MLS Offer Appraisal Offer Approval Closing Short Sale Package to Bank Appraisal Acceptance into program MLS Offer Offer Approval Closing

  5. Who qualifies for a short sale? The homeowner… • is in default with their mortgage lender AND • has little to no equity in the property AND • has a legitimate hardship

  6. What is considered “in default”? • Homeowner is at least 30 days past last day of lender’s grace period for making mortgage payment Example: Payment due April 1st Bank extends 15-day grace period In default 30 days after April 15th In default beginning May 15th

  7. What are legitimate hardships? • Temporary or permanent loss of job • Significant cut in pay • Divorce • Illness or death in family • Increase in property taxes • Increase in payment due to ARM resetting

  8. What documents are required in Short Sale Package? • Authorization to Release Information Form • Hardship Letter • Financial Worksheet • Copies of Tax Returns (last 2 years) • Copies of All Bank Statements (last 2 months for all borrowers) • Copies of Pay Stubs (last 2 pay periods for all borrowers) • Purchase Offer (if there is one yet) • Estimated HUD-1 Settlement Statement (if submitting purchase offer) • Comparable Market Analysis (CMA)

  9. Authorization to Release Information Form • Gives authorization by homeowner to bank for bank to discuss any details of loan with you, the Realtor • Without this form, bank is legally prohibited from discussing any details related to mortgage with you or any other third party (i.e. title company)

  10. Hardship Letter • Sympathetically portrays homeowner’s situation • Should contain trigger points to get bank’s attention • Homeowner must be prepared to support whatever is portrayed in hardship letter (i.e.—divorce…divorce decree; loss of job…letter of dismissal; death in family…death certificate or obituary)

  11. Financial Worksheet • Lists borrowers’ name, date of birth, SS#, phone #s, and address • Also includes all income (detailed), all expenses (detailed), account balances, and any additional assets • Used to show that expenses exceed income and assets that could be liquidated to make up missing payments

  12. Listing Agreement • Short Sale Addendum Right of Sale Listing Agreement • Hold Harmless Agreement • Lender will be responsible for commission. • Minimum of $2,000

  13. Copies of Tax Return • Returns for last 2 years for all borrowers • If unavailable, bank requires the homeowner to submit a sheet of paper stating that this particular document is unavailable • If return has not been filed, bank may require copies of all W-2s and 1099s for year(s) return not filed

  14. Copies of Bank Statements • Statements for last 2 months for all borrowers on loan • Statements for all bank accounts • If unavailable, bank requires homeowner to submit a sheet of paper stating that this particular document is unavailable

  15. Copies of Pay Stubs • Copies of last 2 pay stubs for all jobs worked by all borrowers on the loan • If homeowner(s) is/are not working and therefore do not have any pay stubs, bank requires that homeowner submit a sheet of paper stating that this particular document is unavailable

  16. Purchase Offer • If there is no Offer, go ahead and submit Short Sale Package without the Offer in effort to establish communication with bank • They will also start the process of trying to obtain an approved price.

  17. Estimated HUD-1 Statement • Very important to work with closing officer who is experienced in closing short sales • Harbor Land Title, Gale Marcell • Bottom line on Seller’s side of HUD-1 must ALWAYS net to ZERO

  18. Submitting Short Sale Package • Utilize Short Sale Fax Cover Letter each time • Only info that will change is info specific to individual transaction (loan #, homeowner(s) name, lender, lender’s fax #) • Fax it to right person in right department! • Key to making sure you’re in “short stack” is to have all paperwork completed and completed correctly

  19. How much will bank take for payoff? • Appraisal is most critical piece of information! • FHA loans insured at 82% of appraised value; therefore, bank can discount pay-off amount down to 82% of appraised value • VA loans guaranteed at 88-91% of appraised value; therefore, bank can discount pay-off amount down to 88-91% of appraised value • Conventional loans tend to be discounted at anywhere from 85-92% of appraised value

  20. Earnest Money and Option Period • Recommend no less than $1000 earnest money • Bank will typically reject offers with less earnest money because they consider them not serious enough to warrant an approval • Option Period should not exceed 7 days • The clock is ticking!

  21. Special Provisions “All parties understand that the subject property is being sold via a short sale with the seller’s lender and that all terms of the purchase offer must be approved by this lender. The contract will not be executed and therefore all time periods will not begin until approval is received from the seller’s lender. If all terms are approved, the seller’s lender will pay certain closing costs on behalf of the seller, including broker commissions.”

  22. Calculating the MLS list price • Objective is to list the property at a price that will generate an offer quickly, achieve the bank’s required net for the transaction, and cover all commissions and seller closing costs • If set too low, first thing to be cut is agent’s commission!

  23. Calculating the MLS list price Discount Thresholds Conventional 85-92% FHA Insured 82% VA Guaranteed 88-91% Example: Appraised value = $150,000 FHA loan $150,000 x 82% Conventional loan $150,000 x 85% VA loan $150,000 x 88% Gross-up to include seller closing costs and commissions

  24. Calculating the MLS list price • Next, add real estate commissions and seller closing costs Typically 6% for commissions and 2% for seller closing costs To gross-up by 8%, divide by the inverse, which is 92%

  25. Calculating the MLS list price EXAMPLE Type of Loan? FHA Current market Value (appraisal) $150,000 Lender Threshold? 82% Real Estate Commissions? 6% Closing Costs? 2% Calculation $150,000 x .82 = $123,000 / .92 = $133,696 This is lowest offer you would take for lender approval to cover costs

  26. Judgments/Liens/Other Costs • Add any additional amounts due by homeowner for judgments, liens, delinquent taxes, HOA dues • Add some “negotiation room” or a “buffer” (2-3%)

  27. EXAMPLE Type of loan? FHA Current Market Value? $150,000 Lender Threshold? 82% Real Estate Commissions? 6% Closing Costs? 2% Judgments/Liens? (Mechanics, IRS, Ppty Tax) $4,200 Seller Incentive? $1,000 Buffer? 3%

  28. Deficiency Judgment • Difference between the mortgage balance and the discounted amount accepted by the bank as a result of the short sale • Bank can pursue a deficiency judgment against homeowner • FHA and VA are required to waive the deficiency • As part of negotiations, you should require that bank waive their right to any future deficiency judgment against homeowner

  29. Bank Of America Short Sale • Any Florida Property • Must be eligible for either HAFA or our proprietary program • Exclusions: Ginnie Mae, FHA, VA and USDA loans are ineligible for participation Lot loans are ineligible for participation. • Properties outside the state of Florida are ineligible for participation. • Short sales initiated with an offer are not currently eligible for the enhanced relocation assistance

  30. Homeowners may get up to $20K • Minimum $5K • Up to 5% of the unpaid principle blance • Must not currently have an offer. • Must initiate short sale by November 30, 2011 • Must Close by August 31, 2012 • Money is reported on the HUD and 1099 issued.

  31. How to initiate a B of A short sale • Sign up for equator (www.equator.com) Free • Initiate Short Sale with/without offer • Upload 3rd party Authorization Document • Owner contacts customer service 1.866.880.1232 • Advise them you want to initiate a Co-op Short Sale

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