The Short Sale Process

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The Short Sale Process



What is a Short Sale?



Who Qualifies For a Short Sale?



What are the Benefits of a Short Sale?



What Documents Are Required?



What are the Benefits to Attorneys

?



What is Expected in the Process?



Answers to Frequent Questions

Our Presentation Today Will Address the Following:

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What are a Distressed Homeowner

’

s

Options?

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What is a Short Sale?

•

• The property may be over

The property may be over

-

leveraged or

“underwater

“

underwater”

”

•

• The property owner may be behind on mortgage payments & cannot sell

The property owner may be behind on mortgage payments & cannot s

ell

for high enough to cover what you owe plus other required fees t

o close.

•

• A short sale is an alternative to foreclosure

A short sale is an alternative to foreclosure

•

• Foreclosing on properties always costs lenders money:

Foreclosing on properties always costs lenders money:

–

– Attorney’Attorney’s Fees, Taxes, Insurance, Winterization, Vandalism, s Fees, Taxes, Insurance, Winterization, Vandalism, Weather Damage, Stigma of being REO

Weather Damage, Stigma of being REO

A Short Sale is when the lender(s) and/or lien holder(s)

agree to take

less

than is owed

so the property can be sold.

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Who Qualifies?

•

• Experiencing a true financial hardship

Experiencing a true financial hardship

•

• Be in default on the mortgage

Be in default on the mortgage

•

• Facing imminent default while in a ‘

Facing imminent default while in a

‘

Must Sell’

Must Sell

’

situation

•

• NO Equity in the home

NO Equity in the home

•

• NO available assets

NO available assets

In General

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Who Qualifies?

Most people facing foreclosure or a financial hardship

who cannot sell their home for what is owed

should qualify for a short sale.

Each lender & loan type has a different set of requirements:

–

This information can be found on a current mortgage statement

or the settlement papers from the previous closing.

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The Benefits of a Short

Sale

•

• NO Foreclosure on Credit

NO Foreclosure on Credit

•

• Generally NO money needed to close

Generally NO money needed to close

•

• NO repairs necessary –

NO repairs necessary

–

Sell AS-

Sell AS

-IS

IS

•

• NO taxable event for those that qualify

NO taxable event for those that qualify

•

• NO deficiency judgment if negotiated

NO deficiency judgment if negotiated

•

• Out from underneath your mortgage debt

Out from underneath your mortgage debt

•

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The Paperwork

•

• Handwritten & Signed Hardship Letter

Handwritten & Signed Hardship Letter

Explain the situation, when it started, how it happened & what i

Explain the situation, when it started, how it happened & what is being done to fix its being done to fix it

•

• A Financial Worksheet

A Financial Worksheet

Everything that is spent on a monthly basis Everything that is spent on a monthly basis

•

• 2 Years Most Recent Tax Returns

2 Years Most Recent Tax Returns

With W

With W--2s & all schedules2s & all schedules

•

• 2 Months Recent Bank Statements

2 Months Recent Bank Statements

All accounts & all pages All accounts & all pages

•

• 2 Most Recent Pay

2 Most Recent Pay

-

Stubs

Or, if unemployed, a statement stating such Or, if unemployed, a statement stating such

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The Paperwork

•

• An Authorization to Release Information aka.

An Authorization to Release Information aka.

“

3

rdrd

_{Party Authorization”}

_{Party Authorization}

_”

•

• Copy of recent mortgage statement(s)

Copy of recent mortgage statement(s)

•

• Copy of any correspondence received regarding the property

Copy of any correspondence received regarding the property

from attorneys, lien holder(s), bankruptcy trustee, or pro

bate.

•

• Any paperwork regarding any other liens and/or judgments.

Any paperwork regarding any other liens and/or judgments.

•

• Property tax records

Property tax records

•

• Information about any Home Owner’

Information about any Home Owner

’s Association & any outstanding

s Association & any outstanding

HOA dues owed by the Seller

•

• Information about any outstanding assessment/s on the property

Information about any outstanding assessment/s on the property

•

• Negotiation Disclosures signed & dated

Negotiation Disclosures signed & dated

To Communicate With the Lender, We Require the Following:

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Pending Foreclosure Date?

URGENT MESSAGE

If a property is scheduled for a foreclosure sale date,

be sure that you contact the Lender immediately.

Lenders would rather postpone over 95% of the time than

to get the property back. This can be achieved without

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The NAR

®®

Supports Short

Sales

November 9, 2008

“

Short Sales give many families in financial difficulties

the possibility of salvaging their credit & avoiding the

embarrassment of a foreclosure

. Realtors

®®

across

the country stand ready to help, & NAR will work

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The Benefits to You, the

Attorney

Homeowners in distress need solutions

from Attorneys because you:



Will protect their interests



Have specialized skills



Maintain high ethical standards & integrity



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What to Expect?

1.

1. Property is Listed & Seller Documents Are Collected

Property is Listed & Seller Documents Are Collected

2.

2. Sales Contract Signed

Sales Contract Signed

3.

3. You Submit the Short Sale Package

You Submit the Short Sale Package

4.

4. The Lender Orders BPO and/or Appraisal

The Lender Orders BPO and/or Appraisal

5.

5. You Undergo Negotiations with Lender

You Undergo Negotiations with Lender

6.

6. You Receive Approval From Lender

You Receive Approval From Lender

7.

7. Title Work is Ordered & Completed

Title Work is Ordered & Completed

The Process often takes 3

-

4 months

or longer

to complete.

Patience & Communication are the Keys to Success!

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What is a Basic Timeline?

•

• Get authorization on file with lender

Get authorization on file with lender

2 days

•

• Compile short sale documents

Compile short sale documents

7

7 -

-

14 days

•

• Get short sale package on file with lender

Get short sale package on file with lender

3

3 -

-

7 days

•

• Short sale package assigned to negotiator

Short sale package assigned to negotiator

10

10 -

-

14 days

•

• Get BPO/Appraisal ordered

Get BPO/Appraisal ordered

14

14 -

-

21 days

•

• Schedule BPO/Appraisal with agent

Schedule BPO/Appraisal with agent

5

5 -

-

10 days

•

• Time for BPO/Appraisal to get to negotiator

Time for BPO/Appraisal to get to negotiator

21

21 -

-

28 days

•

• Negotiate & obtain approval from negotiator

Negotiate & obtain approval from negotiator

15

15 -

-

20 days

•

• Total:

Total:

77

77 -

-

104 days

This timeline is in no way accurate for every lender. Some lend

This timeline is in no way accurate for every lender. Some lenders are expeditious, ers are expeditious, others are buried with thousands of short sales & pending forecl

others are buried with thousands of short sales & pending foreclosures. osures. FNMA, FDMC, FHA etc. expand this timeline & often work on their

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There Are No Guarantees

As with any real estate transaction,

there are No Guarantees.

Short Sale Success is Based Upon:

Stopping and/or Postponing a Pending Foreclosure

Cooperation from any & all Lien Holder(s)

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Common Mistakes

•

• Assuming that the short

Assuming that the short

-

sale process is easy & fast

•

• Listing a property for an amount to cover full payoff

Listing a property for an amount to cover full payoff

•

• Not understanding that most lenders have a fixed

Not understanding that most lenders have a fixed

minimum percentage of the BPO they will accept

•

• Not preparing for the crucial interior BPO

Not preparing for the crucial interior BPO

•

• Allowing the BPO to be done without being present

Allowing the BPO to be done without being present

•

• Sending incomplete short

Sending incomplete short

-

sale packages

•

• Not being patient & persistent with lenders

Not being patient & persistent with lenders

•

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Why Are We the Best

Decision?



We Know the St. Louis Market



Your Local Team



We Know How to Negotiate with Lenders



We Are Obligated to Protect Your Interests



Of Files Accepted, Over 95% Completion Rate



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How Are We Paid?



By the Investor Purchasing the Property



A Fee Agreement Between REMP LLC and/or

the Listing Brokerage, Interested Parties



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Wholesale Short Sale

Strategy

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Retail Short Sale Strategy

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F A Q

How much time is left? Do I have to start now?

It is best to begin a short sale when you realize you can no lon

It is best to begin a short sale when you realize you can no longer afford the mortgage. ger afford the mortgage. Missouri has a very short time period between notification & for

Missouri has a very short time period between notification & foreclosure. The earlier the eclosure. The earlier the process is started, the higher the likelihood of a successful sh

process is started, the higher the likelihood of a successful short sale.ort sale.

Does the homeowner need to be in default to qualify for a short

Does the homeowner need to be in default to qualify for a short sale?sale?

NO. More and more lenders are considering short sale requests fr

NO. More and more lenders are considering short sale requests from homeowners who om homeowners who are not in default. However, the individual must be experiencin

are not in default. However, the individual must be experiencing a financial hardship that g a financial hardship that points to imminent default if unable to sell.

points to imminent default if unable to sell.

What is better on my credit

What is better on my credit –– Foreclosure or Short Sale?Foreclosure or Short Sale?

Please consult your own financial advisor or the credit bureaus

Please consult your own financial advisor or the credit bureaus directly for the answer to directly for the answer to this question. From experience only, we can say that foreclosur

this question. From experience only, we can say that foreclosure is much more e is much more damaging to your credit. A short sale will most commonly be lis

damaging to your credit. A short sale will most commonly be listed as ted as ““settled debtsettled debt”” and and is much less harmful to your credit.

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F A Q

Will the homeowner get any money when the property sells?

Maybe. The vast majority of loan types do not allow the seller

Maybe. The vast majority of loan types do not allow the seller to receive any proceeds to receive any proceeds from the sale of the property. If the property is secured by an

from the sale of the property. If the property is secured by an FHA loan, the seller may FHA loan, the seller may qualify for their pre

qualify for their pre--foreclosure sale program that does have a selling incentive. Othforeclosure sale program that does have a selling incentive. Other er Federal Government programs encouraging a homeowner to sell are

Federal Government programs encouraging a homeowner to sell are forthcomingforthcoming……

What if the homeowner files bankruptcy?

Filing bankruptcy will not stop the foreclosure process, just de

Filing bankruptcy will not stop the foreclosure process, just delay it. lay it. The property will eventually be discharged from bankrup

The property will eventually be discharged from bankruptcy protection and be back in tcy protection and be back in the foreclosure process where it was when bankruptcy was filed.

the foreclosure process where it was when bankruptcy was filed. For further For further bankruptcy information, please seek the advice of legal counsel.

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F A Q

What is a deficiency judgment?

Any amount between what the property sells for and what is owed

Any amount between what the property sells for and what is owed to the lender is called to the lender is called a deficiency. If this amount is a large amount of $$ and the ho

a deficiency. If this amount is a large amount of $$ and the homeowner has significant meowner has significant assets, the lender may pursue a

assets, the lender may pursue a ‘‘deficiency judgment’deficiency judgment’, a legal instrument that allows the , a legal instrument that allows the lender to file a law suit and pursue that homeowner for the amou

lender to file a law suit and pursue that homeowner for the amount owed. nt owed. Depending on your situation you may or may not receive a deficie

Depending on your situation you may or may not receive a deficiency judgment or ncy judgment or taxable event. In Missouri, a deficiency judgment is possible,

taxable event. In Missouri, a deficiency judgment is possible, however it is extremely rare however it is extremely rare for a lender to pursue a deficiency. The loss for a lender is a

for a lender to pursue a deficiency. The loss for a lender is a tax write-tax write-off, so once the off, so once the loss has been accounted for, the lender cannot pursue a judgment

loss has been accounted for, the lender cannot pursue a judgment. .

Will I be liable for my lender

Will I be liable for my lender’’s financial loss?s financial loss?

The deficiency is considered by the IRS to be phantom income and

The deficiency is considered by the IRS to be phantom income and the lender is required the lender is required to issue a 1099C to the homeowner.

to issue a 1099C to the homeowner.

According to the Mortgage Forgiveness Act of 2007, any deficienc

According to the Mortgage Forgiveness Act of 2007, any deficiency on a homeownery on a homeowner’’s s primary residence, up to $1 million, is forgiven by the IRS from

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F A Q

What other advice should I seek?

Be smart. Always seek professional advice from a qualified attor

Be smart. Always seek professional advice from a qualified attorney and an accountant ney and an accountant specializing in Short Sales/Pre

specializing in Short Sales/Pre--Foreclosure Sales.Foreclosure Sales.

What about the federal government bailout programs?

To determine your eligibility, please visit

To determine your eligibility, please visit www.financialstability.govwww.financialstability.gov

We make no assurances or guarantees as to the information contai We make no assurances or guarantees as to the information contained ned