In this chapter: Components of effective short-sale package Why short sales fail 4. The Short-Sale Package 4-1

Components of Short-Sale Package 4-2 Short-sale proposal letter Borrower’s signed short-sale payoff application Seller’s hardship letter Seller’s financial information Supporting financial information Supporting hardship information Repair estimate for the property CMA Marketing history, showings, and feedback Purchase contract signed by buyer and seller Written proof of buyer’s ability to purchase property Certified escrow instructions HUD-1 settlement statement Preliminary title report

Components of Short-Sale Package Remember: >There can be multiple loans and you will need to repeat this process for each lender. >“It takes more documentation to get out of their mortgage than it took them to get it in the first place.” 4-3

Proposal Letter Should include: >Overview of homeowner’s situation >What they owe on property >What it is really worth >Amount of needed repairs >What offer to bank is >See Figure

Short-Sale Payoff Application 4-5 Application provided by lender Seller should complete

Seller’s Hardship Letter 4-6 “I’m sorry” “Here are my circumstances.” “I have exhausted all of my options and the only next step is letting the property go to foreclosure.” See Figure 4.2

Seller’s Financial Information 4-7 Financial statement can be constructed list of assets and liabilities: Assets >Real estate >Stocks, bonds, mutual funds >Bank accounts >Personal property >Retirement accounts Liabilities > Real estate loan(s) > Personal loans > Credit card debt > IRS liens > Judgments > Lawsuits

Supporting Financial Information 4-8 Typically same information as for borrowers applying for loan: >Pay stubs >W-2s and/or tax returns >Bank statements and credit reports

Supporting Hardship Information 4-9 The following are helpful to provide complete picture of borrower’s hardship: >HOA liens >Medical bills >Disability statements >Unemployment benefits or status >Divorce decree

Comparative Market Analysis 4-10 Create CMA using most current comparable sales Note: if CMA is too far below broker price opinions (BPOs), lender may view entire short-sale package in negative light

Marketing History 4-11 Provide complete history of showings, feedback, and advertising Highlight data such as: >Average time on market ># of short sale and REO listings >Price trends >Market absorption rate/months of inventory >Recent economic data

Repair Estimate for Property 4-12 Providing lender with detailed repair estimate from reputable (licensed) contractor will assist in getting short sale accepted Most lenders prefer to sell “as is” and have buyer make needed repairs

Contract and HUD Provide lender with a copy of purchase contract All supporting documents, including the HUD-1 settlement statement and buyer’s preapproval letter, should be attached

Follow Up 4-14 After package has been submitted, verify that it was received and that there is nothing more needed to approve short sale Coordinate with seller’s attorney to determine who will be making follow- up calls.

Common Results from Short Sales 4-15 Lien is released and: 1.Seller is forced to carry remaining debt on payment plan 2.Seller is forced to liquidate other assets 3.Lender forgives remaining indebtedness

Lender Approval Letters 4-16 When lenders approve a short sale, they will notify the seller in writing Seller and his or her finance, tax, and legal professionals should review approval letter closely

Lender Approval Letters 4-17 Sample lender approval letter #1: >Bank is releasing security interest only (mortgage) >No mention of releasing promissory note >Needs clarification to determine if seller has to pay deficiency >Note date of approval and date of closing

Lender Approval Letters 4-18 Sample lender approval letter #2: >No mention of cancelling promissory note >No forgiveness of deficiency

Lender Approval Letters 4-19 Sample lender approval letter #3: >Lender is forgiving deficiency on this Note approval date and closing date

Why Short Sales Fail 4-20 Incomplete short-sale package Package not submitted properly Offer too low Buyer not strong enough Lender took too long and buyer backed out Inaccurate BPOs Doesn’t meet lender criteria or investor won’t approve Junior lien holder says no

Mortgage Forgiveness Debt Relief Act of Prior to this law, forgiven debt was considered taxable income Under this law, up to $2 million of debt forgiven on taxpayer’s principal residence in 2007, 2008 or 2009 will not be treated as income