Short Sale and Loss Mitigation Services
What is a Short Sale?
A short sale occurs when a lender agrees to accept less than the outstanding loan amount to satisfy the seller’s loan. A short sale allows both the lender and the distressed property owner to avoid foreclosure by selling the property at a loss. Short sales are more complicated and time consuming than an average real estate sale, making it important to retain an experienced real estate attorney to oversee and negotiate the transaction. The seller’s Realtor must find a bona fide purchaser for the property at the current market value before the short sale offer can be submitted to the seller’s lender. The staff at Integrity Title works with sellers, buyers, and Realtors to negotiate the conditions of the short sale.
Why would a Lender agree to a short sale?
Short sales can be more beneficial to a lender than a foreclosure because lenders are not in the business of managing and owning property and short sales are less expensive than completing the foreclosure process. When a Lender approves a short sale, they receive a substantial percentage of the outstanding loan amount without waiting for a time consuming foreclosure, not to mention they are able to avoid foreclosure and maintenance fees.Our short sale department is experienced in negotiating with lenders to obtain a timely short sale payoff that satisfies both the lender and the seller, often with no or little damage to the seller’s credit rating
The short sale process will require patience on behalf of all parties. Typically, the stronger the offer, the quicker response time.
What documents are necessary to begin the process?
BASIC ITEMS REQUIRED FOR A SHORT SALE PACKAGE SUBMISSION:
Letter of Authorization
Lenders typically do not want to disclose any of a client’s personal information without written authorization to do so. It is best to provide a specific authorization giving the real estate agent, Integrity Title Services, and its associate’s permission to talk with those specific interested parties about your client’s loan. The letter should include the following:
- Property Address
- Loan Reference Number
- Seller’s Name
- The Date (be sure the Authorization states it is good thru the actual closing so it doesn’t expire)
- The Real Estate Agent's Name & Contact Information
- Integrity Title Services, Inc. Name & Contact Information.
- Preliminary Net Sheet (HUD-1 Settlement Statement)
This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. We can prepare this for you and it needs to be submitted with the short sale package.
This statement of facts describes how the Seller got into a financial bind and makes a plea to the lender to accept less than full payment. Lenders can understand if a seller loses their job, or they are hospitalized or a truck ran over the entire family. Lenders are not particularly empathetic to situations involving dishonesty or criminal behavior, so be sure the letter is truthful and gets to the point of why the seller is requesting the short sale.
Proof of Income and Assets
It is best the seller be truthful and honest about their financial situation and disclose assets. Lenders will want to know if they have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash, other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving. Proof of income most lenders require are as follows:
- Most recent two months bank statements*( If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
- Last two most recent paystubs
- Current W-2
- Pages one and two of 2006 & 2007 Tax Returns
- Most recent 401K statement (if applicable)
- If self-employed, a Personal Financial Statement (basically a P&L showing what money comes in each month and what money goes out, including but not limited to electric, food, gas, insurance, mortgage payments, etc.)
Comparative Market Analysis and/or Comps
Sometimes markets decline and property values fall. If this is part of the reason you’re your Seller is having a hard time selling their home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). The real estate agent can prepare a CMA for the seller, which will show prices of similar homes:
- Active on the market
- Pending sales
- Solds from the past six months.
Purchase Agreement ( Executed Sales Contract) & Listing Agreement
When you and your seller reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared that the lender may renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.
Buyer’s Pre-approval Letter or proof of funds:
If they buyer is obtaining financing for the loan, the short selling lender may want proof that the buyer has been pre-approved for financing in order to help them make their decision. Have the buyer provide a prequalification letter from their lender. If the buyer plans to pay cash, the lender may ask for a letter from their bank stating that there are funds available in their account to pay cash for the property. It is a good idea to have this available and submit it along with the short sale package.