The typical uneducated real estate investor in todays market is running like a acared rabbit away from any deal that doesn't have tons of equity instead of trying to be a bit more creative in structuring the transaction for the benefit of all involved. Yes, including or friend the loss mitigation officer at the bank.
It is my opinion that in this market you would be hard pressed to find a bank that won't do a short sale if shown what they will actually save by accepting the short sale. Banks have more REOs (real estate owned) than they know what to do with at this point, they certainly don't need to add to their pile of misery.
Remember the bank that accepts a short sale is doing this for the seller not for the investor. If the seller can justify to the bank that have have made an effort to sell the property by listing with a broker, and have been unsuccessful in getting the price need to pay off the loan it will probably be considered.
Items normally asked of the seller by the bank are a hardship letter which describes the set of circumstances that let to the delinquincy of the loan as well as pay stubs for a number of months and two years tax returns. Most banks will also require a current mini financial statement also well as a BPO (broker price opinion) which is the brokers opinion as to the present value of the property in it's as is condition.
Presently banks will normally save between $29,000 and $31,000 if they accept the short sale in lieu of taking back the property which is now a vacant property subject to vandalism and more of a possibility of someone being injured on the property. The worse shape the property is in the more likely the bank will consider the short sale.
Banks don't like non-performing assets, it effects their lending limits as well as their stock prices in many cases. Key point being, never exagerate the repairs needed and always be upfront with the bank as far as the condition of the property and the financial position of the seller.
Make certain the seller know that there is also the possibility the the bank will place a deficiency judgement on the for the balance owed on the property after the short sale takes place. Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the work out department, you want the supervisor's name, the name of the individual capable of making a decision.
Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan.
The letter should include the property address,loan reference number, your name, the date, your agent's name & contact information, preliminary net sheet which 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.
Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will not get a short sale. 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.
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.
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA).
When you 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 for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home protection plans or termite inspections.
If everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.
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