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WHY A SHORT SALE?
- Increase in Foreclosures NATIONWIDE
- Declining value in real estate market, “Negative Equity”
- Property with no Equity and in Foreclosure
OPTIONS:
- Work-out agreements with lender (loan
modifications/deferment/forbearance)
- Short sale / Short Payoff to sell the property
- Deed in Lieu to lender
- Foreclosure
WHAT IS A SHORT SALE?
Exists when an under-secured lender is willing to accept less
than the full amount owed on its obligation, and allows the owner to
sell or refinance the property.
WHEN CAN IT HAPPEN?
- During the Public Trustee Foreclosure Process
- Allowed prior to the NED being recorded (not yet in default)
with a hardship
- PT sale, then it is a Short Pay
- MUST have the cooperation of the Borrower/Owner!!!!
WHY LENDERS ALLOW SHORT SALES
- Removes loan from a potential non-performing status
(lender’s reserve requirements), bad loans on the books.
- Eliminates need to fully foreclose and deal with REO
properties – Expensive.
- Loss is immediately identified, rather than determining it
after foreclosure and REO
- Most Banks/lenders are not in the business of owning
properties – excess inventory.
- Allows funds to be recovered and reinvested.
WHAT IS INCLUDED IN A SHORT SALE PACKAGE?
- Obtain written Authorization to negotiate for the
borrower/owner.
- Caution: Short Sale documents can be used
to determine the financial status of borrower – assets,
liabilities, possibility of collecting the deficiency. Always
note how the borrower obtained financing!
- Hardship Letter (preferable to be hand written, must be
signed, reason why the borrower cannot pay)
- Financials from homeowner include: Financial Statement,
Income documentation, Bank statements, 2 years tax returns.
- Contract or Offer to purchase.
- Preliminary HUD-1 (the borrower is not permitted to receive
any sale proceeds).
- Listing Agreement
- Lender will order appraisal, BPO. THIS IS KEY
to negotiation.
- Establish a relationship and get their phone number,
work days and hours.
- TIME! Need to act fast to get the short sale package to
them. Process can take 3 weeks to 3 months. You must also ask
for a continuation of the sale date.
SHORT SALE RAMIFICATIONS
- Can be sued for the deficiency (unless a negotiated and
in-writing with such statements included NON-RECOURSE or SETTLEMENT IN FULL agreement is
provided by the lender.
- 1099-C – Reportable income for forgiveness of debt to the
borrower, check with attorney or CPA.
- Agreement to repay deficiency – sometimes at a very low
interest rate. Can be a great option to save credit.
- Credit issues!
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