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How do I know it’s short?
A CMA will be your first indicator, but you also need to ask the seller what
their outstanding debt is and calculate the cost associated with a sale —
from transfer taxes to your commission. This will give you an estimate of
the net proceeds that will be realized, often called the net sheet. This
information can then be entered into a HUD-1 Settlement Statement to
calculate out the final, negative result at closing. Some lenders also have
their own forms.
Check with the title company and the lender to get exact figures on closing
costs and loan balances and to find out what procedures they have in place.
If they can afford it, sellers should also consider getting a home
inspection to determine what repairs are needed on a home and how this might
affect its value, says White.
(Click here to contact me for a free
estimated HUD-1 for your transaction)
Tip: Get the
seller to send a brief letter to all mortgage holders, giving them
permission to speak with you. Otherwise, privacy laws will prevent them from
talking to you about the loans, says Larry Hollingsworth, associate with
HomeCity Realty, Dallas/Frisco, Texas, and a short-sale course instructor.
It’s also critical to build a relationship with the seller’s lender. Once
you have credibility, the entire process becomes easier, he says.
(Click here for a Request for Authorization Letter)
Who do I and the seller need to talk to about
the problem?
If there are a first and second mortgage or a home equity line of credit,
you may have to talk to more than one lender to get approval for a short
sale. In addition, you may also need approval from the entity that holds the
pool of loans if the mortgage has been securitized.
"The presence of two lenders makes a short sale more complicated since it’s
often the lender holding the second, or junior, mortgage that has to absorb
most of the loss," says White, who with Gina Covello, e-Pro®, broker
associate at Keller Williams Realty, Studio City, Calif., teaches a course
called “The Anatomy of the Short Sale.”
Opinions differ, but most experts suggest that you let the lender involved
know as soon as possible of the potential short sale. Others say you should
wait until you have an offer because you’ll get no action until then.
“Without a viable purchase offer, your deal won’t be considered by
mortgagees,” says Margot Cole-Murphy, broker with RE/MAX Equity Group,
Portland, Ore.
Tip:
Be sure you contact the bank’s loss mitigation department, which will be the
group to decide whether to accept a short sale, rather than the collection
or customer service department, which is only interested in recouping past
due loan payments. "Finding the decision maker is often one of the biggest
initial challenges in a short sales," says Thomson.
(Click here for a list of phone numbers of
lenders' loss mitigation departments)
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