Listing Short Sale Properties

The Home Purchase ExpertsSM

Presented By Tom PessemierVice President of Mortgage Lending

One of the Ten Largest Retail Mortgage Companies in the U.S.

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Agenda

• What is a “short sale”?• How does a seller qualify?• Pricing a short sale• Submitting offers to the bank• Listing time to Trustee Sale Date• Contract language for lender approval• Making the short sale appealing to the

bank

What is a Short Sale?

• A short-sale occurs when the net-proceeds from the sale of a home are not enough to cover a seller’s (borrower’s) mortgage obligation and closing costs.

• This is due to the borrower being unable to cover the difference or satisfy it.

• A short-sale can not close / settle, unless approved in writing by the lender(s) holding the lien(s).

Short Sale Approval Process with the Bank

• When (Borrower) Seller signs the Listing Agreement they provide the Listing Agent an “Authorization to Receive and Convey Information” (ARC) to enable the Listing Agent to contact the Lender(s) and discuss the account(s) for possible short sale.

• Borrower or Listing agent contacts the Lender(s)’ Loss Mitigation departments to obtain the list of items needed to submit a short sale request.

• Just like a traditional sale, offers are received & presented by the agent, and accepted or rejected by the seller.

• Once an offer is accepted, it is a binding contract, the short sale package is then assembled by the Listing Agent and sent to the Loss Mitigation Departments.

Short Sale Approval Process with the Bank, cont’d

• NOTE: Some banks are beginning to use on-line systems such as EQUATOR (ReoTrans), ResNet, etc.

• Some Lenders will not release liens without full payment, some cash at closing from the seller or a new Promissory Note

• Some lenders will not cooperate – do not waste your time

Letter of Authorization to the Lender

• The Seller’s “Authorization to Receive and Convey Information” should include:

• Servicer Names

• Loan #’s

• Servicer Telephone Numbers

• Property Address

• Authorization Statement with agent name and contact info

• Seller/Borrowers signatures

• Seller/Borrowers dates of birth

• Seller/Borrowers Full SSN

• Listing Agent and Brokerage Name and contact info

Hardship Letter

• The seller also needs to write a hardship letter, explaining the situation. The letter should be broken into 3 paragraphs:

• “Where they were” – when times were good – (how they were able to afford the mortgage when they got it)

• “How they got here” – What happened that put them into a financial stress (job loss, medical / health, divorce, etc.)

• “Where They’re Going / What they need” – this is when they need to ask for short sale consideration

• They need to stay on-point, and limit this to a one page document.

Picking a Short Sale

• Short-sale experts say to price the property at or near fair market value.

• Most banks (investors who actually own the loans) will have a formula for what percentage under market value they will accept. Ranges have shown from 8-20% under, but that’s changing as prices begin to rise.

• This is why it is imperative to submit a CMA with active listings, pending sales, and sales from the past six months – don’t spend a lot of time on it as it will not be entered into their electronic systems and the servicer will be ordering a minimum of 2 BPOs and 1 or 2 Appraisals depending upon the value.

Submitting Offers to the Bank

• Once you have a fully executed offer signed by the Seller(s) and the Buyer(s), that Contract is included in the short sale package for submittal to the lender(s)

• If another offer comes in after there is an executed contract, all subsequent offers are back-up offers.

• In addition to the fiduciary relationship with the seller, the agent needs to show the bank they are sensitive to their interests. This will become a serious business relationship between Agent and Loss Mitigator / Negotiator.

• A compete Short Sale Package is typically about 120 – 140 pages.

Listing Time to Trust Deed Sale

• A property should not be listed less than 60 days from Trustee Sale Date unless you have a great relationship and success rate with the Loss Mitigation Department at the 1st Lienholder.

• Since the approval response time varies from bank to bank, it is critical that the buyer and their representative understand and accept the lengthy timeframe before they make an offer AND the Seller needs to know they have accepted the offer “most likely to close”.

• The Buyer MUST be committed to waiting several months. If the buyer walks away mid-stream, the process starts over. There is no longer the ability to substitute a new buyer.

Lender Approval Language in the Contract

• It is important to note that the purchase contract on a short-sale is a legally binding agreement once the earnest money has been deposited. Without language in the contract stating that the lenders must approve the offer and release all liens, the seller may face a legal problem for failing to perform to the contract if the short sale is not approved.

What Can Be Done to Make a Short Sale More Attractive to a Bank?

• Have the Title / Escrow company provide an “Estimated Closing Statement / HUD-1” with hard numbers using a realistic closing date several months from submittal date. Include all items such as Delinquent RE Taxes, Delinquent Homeowner’s Association Fees, Seller’s Closing Costs, Termite Inspections, Seller Contribution to Buyer’s Closing Costs, etc. so the Bank / Investor will see the net proceeds they will get upon short–sale.

• Studies have shown that foreclosures can take an average of 18 months, and cost over $60K

• A buyer who is willing to close in 30 days, and is willing to put down a substantial down payment, is going to be more attractive to the bank on a short-sale.

What Surprises Should the Agent Expect?

• Most investors are not allowing many costs• Delinquent HOA fees, some closing fees

charged by title, escrow, or attorneys must be paid by a “third party” (not the seller or the bank)

• No inspections, termite treatments, etc.• Some Buyer closing costs might be allowed

(and can be used by the buyer to pay some delinquent items if necessary)

• No payments to subordinate lienholders• LESS THAN 30 DAYS to close after Approval

Letter is issued.

Why Should I List a Short Sale?

• Loans continue to go into default, so this could be a big source of potential business.

• Great satisfaction when you get one approved and help “turn the page” in someone’s life.

• When you have success in Short Sales, the seller will tell everyone once it’s over – and YOU will get the referrals!

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Tom PessemierVice President of Mortgage Lending

O: 941.313.8148 M: 425.780.6374

Tom.pessemier@guaranteedrate.com

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