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What information will the bank need to
decide whether to accept a short sale?
The sellers’ submission package should include W-2 forms from employers (or
a letter explaining the seller is unemployed), bank statements, two years of
tax returns, and other financial documents outlining income and debt
obligations. The bank will also need comps or a broker’s price opinion
showing your estimate of value.
In addition, the sellers should submit a “hardship letter,” explaining the
circumstances that make it impossible for them to pay the full amount of the
loan. The seller needs to be able to show true financial hardship. Someone
with the assets or the income to pay is unlikely to be considered, say most
interviewees.
(Click here for a tear-jerking letter of hardship)
Tip: In
preparing the package, be careful about discrepancies between the seller’s
income and the income used to obtain the loan, cautions Lance Churchill, an
attorney and instructor on short sales and REOs with
FrontLine Seminars.
A big gap may indicate mortgage fraud, unless employment circumstances have
drastically changed.
What are the options besides a short sale?
Thanks to programs such as those proposed by Fannie Mae and Freddie Mac to
assist subprime borrowers, many lenders are more willing to offer loan
modification options. This option can extend the term of the loan, add on
delinquent payments to the loan principal, and/or reduce the interest rate
to make the loan more manageable for the home owner.
Another option is a repayment plan that requires home owners to increase
their monthly payments until the loan is current, says Loni Parmelly, a real
estate practitioner and consultant who specializes in short sales. Parmelly
also is author of Success in Short Sales
(2004), a book she sells on her
Web site.
It may be possible to refinance an adjustable rate loan with a Federal
Housing Authority or conventional fixed loan.
Note that lenders will not postpone a
foreclosure just because a property is listed, although they may postpone if
you have a reasonable offer in the works.
Tip: The
ideal candidate for a short sale is still making loan payments and has a
credit rating worth preserving. Otherwise, it may not be worth going through
the complicated process, says Steve Pierce, broker and operating principal
of Keller Williams Benchmark Properties, Fremont, Calif.
How should I price a short sale property?
In general, most short sale experts say to price the property at or near
fair market value, although a few will begin with the total payoff amount
owned by the seller. How frequently prices are dropped will depend in part
on whether the property is in preforeclosure. Most banks have a formula for
what percentage under market value they will accept, say interviewees.
Figures cited vary from 8 percent under to almost 20 percent under.
"I always price the property 10 percent lower than comparable to peak buyer
interest and initiate buyer activity," says Cole-Murphy, who’s also founder
and curriculum developer for
Real Estate Pro Guides,
a line of educational books for practitioners. However, it’s important for
buyers to understand that the bank will not give away the property, she
says.
Tip: Most
lenders will want to get a broker’s price opinion or even an appraisal to
see what the property is worth before you and seller set a list price. One
way to help ensure that the bank’s estimate of value is realistic is to
offer comps of recent sales — both traditional and REO, says Churchill, who
is also the author of The Foreclosure
Specialist: A Real Estate Agent’s Complete Guide on Working in the
Foreclosure Market (Valco
Press, 2007).
“Practitioners who do BPOs are rated in part on how close their estimates
are to the final sale price, so they usually welcome information on
legitimate comps,” he says. |
