Short Sales 1-2-3

Thinking about doing a short sale? It’s really no different than listing your home normally. Here is a list of the things your real estate agent will ask you for and then send to the lender if he or she is handling a short sale for you.

1. Letter of Authorization. This letter allows the agent to call your lender on your behalf. Usually your agent will need the last four digits of your social security number as well as a good contact phone number.
2.Copy of last 2 years FEDERAL tax returns – all pages, and signed by you and/or your spouse in BLUE ink.
3. Enough paystubs for a ONE MONTH pay period
Loan Statement (for each loan)
4. Completed Budget or Financial Statement (signed) by you.
5. Hardship Letter – where you’ll briefly describe the reason for your hardship. Include any/all documents/pictures to support hardship. Example: roof receipts, pictures of old roof, medical bills, divorce papers, loss of income, etc.
6. Copies of last three (3) MONTHS bank statements – ALL PAGES – even the junk pages that you don’t think are relevant. If the bank statement says page 2 of 4 make sure that page 4 is included too.
7. Document any “special income”. For example if you receive Social Security Income include the annual letter from Social Security. If divorced, include the spousal income. Rental income, include a copy of a rental agreement.
8. Listing agreement – filled out and signed by the seller and agent.
9. Purchase contract – filled out and signed by buyer and seller.
10. Preapproval letter from buyer’s lender. A normal letter that shows that the purchaser is qualified and able to purchase the home.
11. A copy of buyer’s earnest money.
12. A HUD-1 statement. This is usually prepared by the escrow company and shows the lender(s) how much money the sale will net them after all expenses have been paid.

If you have hired a real estate agent to list your home, the bank is fully prepared to pay all the costs involved in the sale.
Write your LOAN NUMBER at the TOP of all pages in LARGE LETTERS.



A short sale is the process through which your mortgage company agrees to sell the home at current market value which is usually less than what is owed to them. They do this as an alternative to the expensive and time consuming process of foreclosure, bankruptcy and/or eviction.

Each mortgage company has their own set of processes through which they decide whether or not to accept a short sale, and while there are many similarities, each has its own requirements for approval.

As a third party mediator, we have a distinct advantage in negotiating with your mortgage company. Here is how it works:

First you will need to list your home. Easy enough, then fill out the brief application forms that we will provide to you. Once all of the forms are completed we will fax them to the mortgage company to let them know that we are working on your behalf.

Then the lender will issue a “workout package”. This is the lenders list of instructions and requirements for considering a short sale.

Some of the things they will likely require are:

1. Financial Application – fill out a form the bank supplies.
2. Hardship letter.
3. Last 2 paystubs for all borrowers (including L&I and unemployment benefit.).
4. Last 2 years tax returns.
5. Last 2 bank statements.
6. Last 6 months of Profit and Loss statement (if self employed)
7. Third Party Authorization which allows someone other than the borrower to obtain your personal information.

One of the most critical aspects of a successful short sale involves writing a compelling hardship letter. You want the letter to be believable, and yet not come off like a person who is interested in taking advantage of the bank’s generosity. So here is an example of a successful and free hardship letter. It is my pleasure to offer it to you in the hopes that it will be of assistance to you.

To Whom It May Concern:
This letter is to explain our hardship situation. On or about December 2, 2008, my husband was suddenly and unexpectedly laid off on his job. He found employment at another firm on Dec. 15th, but this employer cut his hours after only two weeks of work. Unfortunately, the same thing happened to me – my employer cut my hours and then closed down for good. I am still looking for work, and we have decided that we are going to have to move in order to find better-paying jobs for ourselves and our two children. We have cut out all our entertainment expenses – including attending Bible study – to save on gasoline. We really want to save our house, but if we can’t,we would not want to file for bankruptcy. It is against our principles, but if push comes to shove and we have to file for bankruptcy in order to avoid foreclosure, then we will. We are asking you to please help us in this time of national financial crisis, and work with our realtor to do a short sale. We sincerely appreciate your help in this matter.
Yours truly,
John Smith

Please note: it is important to use the phrase, “we do not wish to file for bankruptcy” in your letter. Why? Because the last thing that the lender wants to get involved in is a bankruptcy, and/or eviction. It lengthens the time involved considerably!
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Feel free to post your comments or any questions you might have. Good luck!



Have you ever been contacted by an investment group that expressed an interest in your short sale listing?

Here is the scenario: The purchaser claims to be a cash buyer, but refuses to show proof of funds. Not good.

They also want an incredible amount of detailed information on the property to “evaluate” whether or not to go forward. Most agents will err on the side of giving the buyer a chance to purchase, because we want to make a sale. But be careful! Why?

Because as real estate agents we cannot disclose certain things to buyers without getting the permission in writing from the seller. The existing loan balance on the house, for example, is none of the buyer’s business. Just try calling a bank sometime and ask them to give you the balance owed by the borrower. The bank will tell you to pound sand. You should give any buyer who calls you out of the blue the same cold shoulder.

Especially when the purchaser hasn’t provided any proof of their ability to perform.

These types of buyers will often try various ways to get around you, using a different email address or name, for example, but usually the more you investigate,the more you’ll find that your initial instincts are correct.

The buyers are either flakes or have their own team of “negotiators” to do the workout instead of you.
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Granted, some of these buyers are probably well-meaning people who trying to follow some Internet guru who works out of Kentucky or are following ideas that might have worked back in 1972. But at worst, they may be con artists looking to get the seller to sign a power of attorney which allows them to collect any and all rent, and/or kick the owner out of his own property.

I mean there are lots of strange things that happen and perhaps some unusual scenario where it might be OK for a buyer to be an authorized 3rd party to negotiate with the seller’s lender, but it’s pretty rare. In that case, it should be done over extremely controlled circumstances and after enormous due diligence. The buyer might be a licensee with experience, an attorney with expertise in workouts, or some other credible scenario where checks and balances exist. Permission to do so should not be granted lightly. In this case, where the buyer is shady, vague, and evasive, it should be avoided at all costs.



Okay, just for fun, write down your feelings about short sales in a short poem or haiku. What is the proper haiku format? Haiku: a Japanese lyric verse form having three unrhymed lines of five, seven, and five syllables. You can give them a title, or not!

Example:

Poem
I gave up my home
Trying to do a short sale
All was for nothing.
Wish that loan rep was in jail!

Haiku
Mystery bank lady
working on my short sale
Never calls me back.

Haiku#2
Faxing the same things
Offer,prequal and HUD-1
lousy short sale game

Haiku#3
Another two months
It will be a short sale year
I still hope for “yes”



Per the IRS.gov website, you may qualify to receive this credit if you meet the following qualifications

“… qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.”

The credit itself:

Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
Applies only to homes used as a taxpayer’s principal residence.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed. You just need to fill out a form to get the credit.

So if you were considering buying a home this year – be sure to talk to your accountant as you may also qualify to get $8,000 extra dollars for buying your first home !



Understanding How the $8,000 Homebuyer Tax Credit Works
by Bob Boog

The new Obama homebuyer tax credit has launched out of the starting gate and rather than get left behind, I thought I might find out more about it. Like a lot of real estate people, I don’t quite understand it. So I asked my friend and mortgage broker professional, Eric Larsen to help clear up some of the mystery. And maybe my stupidity and his answers will make things clearer for you!

Bob Boog: From my understanding, homes purchased in 2008 are eligible for a $7,500 tax credit, right?

Eric Larsen: Yes, but unfortunately, this 2008 credit has to be paid back over 15 years.
Homes purchased in 2009 are eligible for the new $8,000 tax credit and the 2009 credit does not have to be paid back as long as the buyer lives in the home for at least 3 years.

Bob Boog: So, are we gonna go back and forth between 2008 and 2009, or just talk about 2009 here?

Eric Larsen: Sorry, all of the rest of this information pertains to the 2009 credit:

Bob Boog: Let’s think backwards for a second, cuz that’s me. I always do things that I’m not supposed to do first and then people will say, um, you don’t qualify for this. You didn’t read the fine print. So what is the fine print? What CAN’T a buyer do?

Eric Larsen: A buyer may NOT file a tax return BEFORE they close escrow, hoping to get the credit to use for the purchase they are about to make. This would be filing a false tax return! A buyer CAN file an amended tax return AFTER closing to get a quick refund from their 2008 tax return.

Bob Boog: So I guess it pays NOT to do your taxes and file for an extension?

Eric Larsen: Not really. I’m just referring to an amended return.

Bob Boog: Okay, so here is the link for the necessary form to file from the IRS. But here’s the million dollar question, the one that people keep asking me. Can I use the $8,000 credit for my down payment?

Eric Larsen: Yes and no. By this I mean that No, at this time, you cannot hope to use it directly for a down payment, however, FHA is allowing buyers to get a loan for the $8,000 credit from FHA approved lenders and non-profit organizations (think Nehemiah type agencies) which then can be used for down payment and closing costs (so yes, it CAN be used for down payment). However, while FHA has said it is OK, implementation at the lender and non-profit level is lagging. I am sure plenty of agencies and
lenders will be jumping into this “short term financing” option of the tax credit soon!

Bob Boog: So this is a good thing, right?

Eric Larsen: Yes definitely. This is the final piece we need in our industry to really make
this tax credit “pop”!

Bob Boog: So how exactly will it work?

Eric Larsen: The loan can either be paid back when the borrower
gets their refund or the small loan can have monthly payments (if the loan
does have monthly payments it has to be included in the qualifying debt
ratios!).

Bob Boog: Are there any other stipulations?

Eric Larsen: Yes, the home purchase MUST CLOSE prior to December 1st, 2009!

Bob Boog: Why do they call this credit “refundable?” This confused the heck out of me. Doesn’t it mean the buyer has to pay it back some day?

Eric Larsen: No, but that’s a good question. Refundable does NOT mean a buyer has to
pay it back, it means a buyer gets the full tax credit even if they have no tax liability (WHY they use the word “refundable” for this is beyond me. Must be government speak).

Bob Boog: What if I make $300,000 a year? Can I still get the tax refund?

Eric Larsen. Sorry, but NO. The tax credit phases out if a buyer makes more than $75,000 per year and disappears entirely if they make more than $95,000 per year ($150,000 to $170,000 is the phase out range for married couples).

Bob Boog: How about if I buy the house from my Uncle Harry?

Eric Larsen: That’s another thing. A buyer CANNOT use the credit if they are buying a house from a close relative.

Bob Boog: Okay, what else haven’t you told me?

Eric Larsen: That’s it. Oh, if you are doing business in some lower-priced areas ($40,000 – 80,000 homes) keep in mind that the tax credit is $8,000 or 10% of the sales price, whichever is LESS!

Bob Boog: See? I knew there was a catch. Holding out on me again. You bastard.

Bob Boog: Let’s get back to having somebody do your taxes…

Eric Larsen: You mean filing an amended return?

Bob Boog: Right. My question is, how long does it take?

Eric Larsen: How long does it take for the accountant to file the return, or how long before your buyer gets the money back from the Treasury Dept.

Bob Boog: Um, do I really have to answer that?

Eric Larsen: Knowing you, Bob, you want to know how quickly a buyer can expect to get their money from the Treasury Dept. So to directly answer your question, it takes about three to four weeks.

Bob Boog: Wow. That’s pretty fast!

Eric Larsen: I even made a copy of the check, so I’m pretty confident that it can be done in that time frame.

Bob Boog: So here’s another question for you, and it’s not really a question, more of a proposed scenario. You know, one of those “what if” scenarios?

Eric Larsen: Oh not, not one of those.

Bob Boog: Well, I’m just thinking aloud here, ok so what if I’m a buyer and I borrow $8,000 from one of my solvent friends or family members, then I might be able to pay them back pretty quickly, couldn’t I? I mean provided that I can get my accountant to file the amended return right away?

Eric Larsen: Sure, I don’t see why not.


I recently read a blog discussion about new-fashioned “style” methods of real estate vs old fashioned “substance”. For example, should one do the cool new stylish thing – Twitter, Facebook, texting or the old reliable door-knock to prospect for short sales?

In a time when many people (including realtors like yours truly) are facing the largest financial challenge of their lives, I think it’s more important to be effective, than just efficient. So I would suggest that agents do the thing that makes the most effective use of their time. Door-knocking, for example, is probably the single most inefficient method of prospecting that has ever been invented, but probably the most effective. I can still remember getting five listings one afternoon as a result of handing out bags of corn on the cob to my farm area the day before. It’s highly inefficient to buy a bunch of corn, bag it, and then knock on doors and hand it to people. But what a rewarding smile you can get. And what an effective impact it can make.

If your market has heated up recently, you may find that personally delivering a contract may be less efficient than email or fax, but believe me, begging in person is so much more effective. .

Technology is great at being efficient, but as others have pointed out, most realtors nowadays will find a marriage between the two works best. And sometimes you just have to stop and ask yourself, “Wait, am I being effective right now or just efficient.”

short sale contract page01

The Cleanest Short Sale Contract is Often the Best
by Bob Boog

When writing a short sale contract, try to make it as “clean” as possible. By clean, I mean that it should be typed and/or easy to read and as uncomplicated as possible.

Uncomplicated? No garbage fees. Naturally you will send a HUD-1 with the contract and most bank negotiators will line-item-veto costly inspections such as septic report, pest control inspection, home warranty and “clue” reports. These inspections are deemed unnecessary by a bank who prefer to sell property in “as-is” condition.

So why include them in the first place? Purchasers with “cleaner” offers will have a much better chance of gaining approval from the bank.

Listing agents should also include a Short Sale Addendum (SSA) that states certain time limits. For example, how long the buyer will wait to get lien holder approval, when the purchaser will perform their due-diligent inspections, what will happen to the initial deposit, etc. The Short Sale Addendum form helps untangle some of the uncertainties involved in a short sale transaction.

As a listing agent, I will often ask the selling agent if the purchaser is willing to wait three months to get an answer. Why? Because unfortunately, that’s how long it’s currently taking to get an answer back from the bank! Or I will ask the selling agent if his buyers are making offers on ten other properties hoping that he will get one. If so, then not to bother with submitting a bid on our property. There is nothing worse than wasting three months only to have a buyer walk out at the last minute!

If there are multiple offers on the property, the strongest offer is usually seen as the “cleanest” one–a buyer who, perhaps doesn’t have to give notice to a landlord, is willing to deposit money into escrow and is willing to be patient.

Short sales can become tricky transactions when it comes time to close. Purchasers may suddenly have to give notice. The seller’s tenants may fail to move out on time. And sellers may not have sufficient funds for required repairs.

Real estate agents have to be attentive to all of the terms and conditions of the real estate purchase contract–perhaps even more so now than ever before.