8 Essential Items For a Short Sale Package

Typically the short sale package with the hardship letter, is one of the most critical components to getting a short sale deal done smoothly. Incomplete or sloppy short sale packages could add months to an already tedious short sale process. Since the decision to approve a short sale is entirely up to the mortgage company, you need to always be patient and tolerant of your mortgage lender throughout the entire short sale process.

The first part of the short sale process is usually to prepare the documentation otherwise known as the short sale package. The short sale package typically includes pay stubs, bank statements, and taxation assessments. Additionally, the package will include a hardship letter along with a financial statement. While some loan officers may waive the requirement for these types of documents, it is pretty standard practice for loan officers to request all of the items listed below.

When you list your property as a short sale, your listing agent will most likely demand these things in advance specifically to start preparing the bundle that goes to the bank. Beside the things that you supply, this package will include a purchase agreement, company agreement, an expected settlement explanation and an authorization form.

If your listing agent does not ask for the pay stubs, bank statements, expense forms, and hardship letter and you have recorded your home as a short sale, you might need to find out why this is the case.

A qualified short sale listing agent will request these types of items at the beginning of the purchase. Experienced short sales listing agents realize that a short sale is a long and wearisome transaction. However, these agents possess the experience required to make the transaction as efficient and smooth as possible

When putting together a short sale package, here are the essential parts of the package:

  1. Authorization to Release

An Authorization to Release Information (ARI) is a document that permits your lawyer or negotiator to speak with the bank concerning your short sale. This form will allow your attorney or negotiator to order payoff, submit a purchase offer to the bank, also to make a deal with bank negotiators. Banks would not speak with any negotiator that has not first submitted an ARI which includes the seller’s names, signatures, social security numbers, as well as bank account information.

  1. Hardship Letter

This is a letter from the borrower to the loan specialist quickly clarifying their circumstance. Ideally, this is neatly transcribed. It ought to just be 5-7 paragraphs and should be composed as though the borrower is approaching a friend for some help. Loss mitigators are people too and dumping on them is not a decent strategy to get their endorsement of your settlement package. The hardship letter is maybe the most essential part of the short sale package. It needs to recount the anecdote about how the sellers got into their current circumstance, what they have done to find a solution and why there are no feasible solutions other than the short sale option presently available. It must contain the loan number, and be duly signed and dated.

  1. Financial Statement

Regularly, the bank has a particular variant of this form. Use the lenders’ whenever available. This is only an outline of the borrower’s income, expenses, resources and liabilities.

  1. Recent Pay-stubs

The lender wants proof of the current income of the borrower to determine if payments could be made. Usually, the last 2 pay periods is enough.

  1. Recent Bank Statements

The lender wants proof of the liquid assets of the borrower. Usually the last 2 months of the statements is sufficient. If there are major deposits or withdrawals on these statements, you can include a separate explanation because the processor will probably wonder about them. Be able to answer the question before it is asked.

  1. Recent Tax Statements

The lender wants to see what a borrower has reported to the IRS for profits and expenses. Usually, the last 2 years of returns is enough. Submit as portion of your short sale package, your federal tax returns going back 2 years, each page signed and dated. If you haven’t filed your tax returns for the past 24 months, you will need to include a note of explanation and require extensions.

  1. Purchase Contract

This is any contract that relates to the purchase of your home. Obviously, the purchase price will be less than the amount owed or it wouldn’t certainly be a short sale. There may at the same time be seller concessions that the lender will probably need to pay, resulting in a smaller payoff. The purchase contract will be signed by both the sellers and buyers and will have a term that says it is subject to financial institution approval. This clause prevents the seller from selling at any price not approved by the lender.

  1. HUD

This is the settlement statement showing the closing costs along with the eventual payout the lender receives. The HUD will have to prove that the seller will receive ZERO dollars at closing.

These are the essential elements of the short sale package. Remember that the lender is being asked to take a hit. So they want to make sure they do not do alone. The lender will not want the borrower to walk away with a lot of resources, cash in the bank, much additional revenue, possibly retirement accounts.

Also remember that taking a short sale is an agreement between the borrower (seller) and the lender for the lender to accept less than a full payout. Any misrepresentation in the package can be considered mortgage fraud.

Why Short Sales Take a Little Longer

The deadline for a short sale is dependent on a number of factors, such as banks and brokers involved. From closing the first offer, it can take a quick short sale only 60 days. However, a short sale with problems along the way, might take up to a year to complete. According to Amy Simmons of Keller Williams Realty in Jupiter, Florida, the average short sale requires three to nine months.

Why It Takes Longer Than a Normal Transaction

A short sale happens when a homeowner sells a house for less than the amount due on the mortgage loan. They sell the House short of the outstanding balance, hence the term. In many cases, short sale is a strategy for avoiding foreclosure.

But homeowners cannot do this only on their accord. They need the lender’s permission, since the lender will likely be taking a loss in the deal. This is the reasons why a short sale takes longer than the regular transaction, generally speaking. In a conventional sale, the seller/homeowner doesn’t need the lender’s permission since they will pay off of the balance in full.

Short sales are usually more complicated for the reason that multiple approvals is usually required. There might be more than one lender involved. There may also be a private mortgage insurance protection (PMI) company that has a stake in the deal, and therefore some influence on the approval process.

Here is a closer look at the factors that slow down the short sale process:

  1. Responsiveness of the vendor

One of the biggest causes of delay in the short sale is the seller himself. Their mortgage lender asks for documentation during the short sale process, and many times the lender will ask for updates on paperwork that has already been lodged. Many vendors have been slow to produce paperwork because they are disorganized, emotionally upset, or confused about the purpose of the paperwork. The ideal short sale seller immediately responds to requests for paperwork without questioning why the lender wants it.

  1. Internal policies of the lender

Each lender has its own timetable for a short sale. Many borrowers try a loan modification first, and many lenders will not consider a short sale while a loan modification is being considered. Most of the time, the lender’s personnel is overwhelmed and that delays the process.

  1. Involvement of alternative lien-holders

If there are actually multiple lienholders, that might lengthen the short sale negotiation because everyone has to approve the sale. In most situations, each lienholder may seek to limit what other lienholders receive, which could complicate the negotiation.

  1. Involvement of a home loan insurer

If a loan insurer is needed, then they are required to agree on the amount of loss that the lender will take. That injects an additional decision maker into the process. The mortgage insurers sometimes have certain rules about what they would approve, and the lender may have to abide by those guidelines.

  1. Involvement of a Government Service Entity (GSE)

If Fannie Mae, Freddie Mac, the Veterans Administration (VA), the U. S. Department of Agriculture (USDA), or maybe the Federal Housing Administration are involved, then they too have to approve the short sale. That injects yet another decision maker into the process, and each unit has its own system.

The sort of short sale program. There are government short sale programs, similar to the Home Affordable Foreclosure Alternatives (HAFA). There are bank programs, similar to the conventional short sale and the cooperative short sale. Every program has rules on timing. One system might require that the property not have an offer on it yet, while another lender’s program might just consider a short sale if there is a marked contract with a purchaser.

  1. Involvement of a third party negotiator for the lender

Some lenders, particularly the Bank of America, prefer to use third party vendors to help negotiate with the seller. These third-party companies work for the bank and may have their own procedures in addition to the rules of the lender.

  1. Involvement of an authorized vendor or attorney negotiating for your seller

A third bash vendor or attorney working for the seller could possibly have their own suggestions. They may only advance the short sale if most paperwork is received from the seller upfront.

  1. The ability of your listing agent to help procure a buyer

Even if this short sale agreement process is switching along quickly, it is essential to get a ready, willing, and able buyer. Without a buyer, there is no closing. Some properties, such as houses in need of repair, may only entice a certain segment of the buyer pool. If a lender pre-approves this short sale at a certain price, but buyers believe that price to be too big, then there will probably be extreme difficulty in locating a buyer.

  1. Expiration of the appraisal or Broker’s Price Opinion (BPO)

Even if there exists a buyer and the process is going along quickly, a lender might possibly slowdown the negotiation because the valuation of your property is very old. Some lenders could possibly only consider some sort of appraisal if it occurred in less than three months, while others may well only approve a short sale if the particular appraisal is just less than 6 months old. Also, it may take days or weeks for the appraiser or BPO adviser to submit his or her report.

How To Speed Up the Short Sale Process

Hiring an agent who has closed many short sale deals will serve as leverage since experienced agents know how certain banks work, what could be expected and how to best work through the complex process. But even the most experienced short sale agent can at times come across brick walls or challenges they simply cannot overcome.

The long and short of it is that the sale of a home in a short sale can save your credit if you know how the process works, so make sure the professionals you work with have a lot of experience.

Mortgage Debt Forgiveness Act extended!!!

Special Real Estate Report
Short Sale and Mortgage Insurance Benefits

Homeowners are among those who will benefit from a $760 billion tax deal that was signed into law in December. The deal includes two very important tax breaks for those who own homes.

The law includes a retroactive extension of The Mortgage Debt Forgiveness Act through 2016. This law expired at the end of 2014 and, without an extension, any loan forgiveness achieved in a short sale would have been counted as income for homeowners who sold their homes for less than the amount of their home loan during 2015.

Also extended retroactively until 2016 was the deduction for mortgage insurance payments, which expired at the end of 2014. Borrowers with adjusted gross incomes up to $100,000 can deduct 100% of their payments. Deductions are reduced by 10% for each additional $1,000 of adjusted gross income above $100,000.

The threshold for married borrowers filing separately is $50,000 of adjusted gross income per person. Deductions are reduced by 5% for each additional $500 of adjusted gross income above $50,000.

Credit – Mclean Mortgage

Foreclosure vs. Short Sale

There exists a lot of misunderstandings about foreclosures and short sales. Which should you use and why? Will your credit score be impacted just the same way by both of them?

When you buy a house, you typically make a deposit and then set up a mortgage amortized over a number of years. The house is used as collateral and if the homeowner is unable to make monthly mortgage payments, the credit institution has the right to seize the property in order to recoup their losses.

Now let’s compare these two options:

What is a Foreclosure?

Foreclosure is the means by which a lender gets title to a property because of homeowner’s loan default. The lender recoups their own loan investment by simply selling it at the trustee sale. If there are usually no other potential buyers, the bank takes the exact property into inventory as real estate owned (REO). Banks are not in the business of property proprietorship nor management, and they are legally obligated to sell off these kinds of non-performing assets.

What is a Short Sale?

On the other hand, short sales are properties sold before foreclosure at a discount for the reason that current market value is lesser than the loan amount. The homeowner still has the title but the sale must be endorsed by the bank, who endures a capital loss upon sale. To keep away from the extra cost of the foreclosure process, banks are willing to sell properties at or below market value.

Foreclosure Facts

According to Re/Max, the average price of foreclosed houses was $185, 000 while that of other regular properties was $267, 300 in May 2011. In addition to prices, bank owned properties can be bought much more quickly over a typical short sale made.

Despite the low price, bank owned properties have their share of problems. These foreclosed properties typically sit vacant for weeks or even months, lack regular maintenance, attract squatters as well as copper thieves and need repairs. Most banks promote their foreclosed properties in an “as is” condition. So, anyone who will buy must find what repairs are essential and invest money and time to fix those difficulties.

Short Sale Facts

This type of distressed property is in relatively better condition, and often repairs are not necessary. Since properties are still occupied by homeowners, the house is usually maintained. Roughly 80% of these properties are of good quality.

However, short sales have their drawbacks. This type of foreclosure may take a long process, requiring months to complete. You need to be qualified and have a much longer time horizon to buy the property. Reason for the long process is that all pledgees must approve the sale. But, the short sale process can be sped up if the seller’s agent is experienced in negotiating with the bank and closing short sales.

Foreclosure Process

Depending on the state a borrower lives in, foreclosure may or may not involve the judicial system. Following three to six months of missed installments, a loan specialist will record a notification of default, which informs a borrower that he is confronting foreclosure and gives him a reestablishment period to make things right by paying off obligations or settling any dispute. The length of the reinstatement period changes by state, with a few states giving borrowers a negligible five days to settle disputes and obligations and others giving up to 90 days.

If the home loan’s unpaid balance is not paid off within three months, the mortgage holder gets a notification of sale. The property is then sold at a trustee sale to the highest bidder, who must pay in real money inside of 24 hours. The opening offer is generally equivalent to the outstanding balance and any extra lawyer charges the bank might have incurred.

Short Sale Process

When the market value of the property is less than the outstanding mortgage principal, and the borrower cannot afford to pay the loan, the lender (one or more banks) can choose to accept a short sale. In a short sale, the proceeds from sale of the property falls short of the mortgage balance, which is one reason lenders may hesitate to accept the offer for a short sale. Any unpaid balance owed to the lenders after a short sale takes place is known as a deficiency. Short sale agreements are not necessarily borrowers releasing themselves from their obligations to repay any shortcomings of the loans unless explicitly agreed between the parties.

Distinctions Between Short Sale & Foreclosure

  1. For borrowers: The current government is actively trying to halt the tide of foreclosures in the United States. For this purpose they began the MHA program, which stands for Making Homes Affordable and is an attempt to reduce the mortgage payments on both primary and secondary mortgages. The hope is that more people are able to stay in their homes will be.Those borrowers who are still unable to keep their homes, even with the help of the MHA program can use a short sale as a way to get out from under their obligations to the lender. If this was the primary residence of the homeowner, they are not liable for taxes on the forgiven debt, and may even be eligible for a $ 1,500 to help pay for moving expenses.
  2. For Lenders: Lenders participating in the MHA program are required to reduce the mortgage payments in an effort to make payments affordable. Under this program, lenders can also get up to $ 1,000 in incentives, even without loan modification. To make this possible, the lender must allow a short sale if the borrower prefers this option.
  3. Credit Scores: Neither foreclosures nor short sales offer an advantage over the other in terms of the negative influence on a person’s credit score. Industry experts along with Freddie Mac and Fannie Mae say that this decline in credit ratings will be between 200 and 300 points.
  4. Waiting time between mortgages: Freddie Mac and Fannie Mae guidelines stipulate that a borrower must wait for 5 years before qualifying for any new mortgage following a foreclosure. In the case of a short sale, the waiting period for a new mortgage is merely 2 years.

Conclusion

As a homeowner, if you qualify for aid that will lower your payments, maybe you will be able to avoid a foreclosure. If not, trying to work out a short sale with your lender probably is your best bet.

From the lenders standpoint a short sale might be best because foreclosures might be both costly and time intensive. Ultimately the impact of your foreclosure to your credit rating and ability to borrow later on is reason to choose the short sale above the foreclosure. Lenders will look more favorably on the borrower that tried to cooperate with the bank (via short sale) than one who just walked away.