How does a Short Sale work and how do you get started?

If you have missed a payment on your home or the writing is on the wall that you will not be able to make future payments, now is the time to take action. The decisions that you make in the next 30 days will have lasting effects, either positive or negative on your future financial well being.

One of the first things that you are going to need to determine is whether or not you want to stay in your home. If you are looking to stay you are going to have to determine whether some version of a loan modification is right for you.

A loan modification is where the bank agrees to change the terms of repayment to accommodate your current financial means. This may mean changing your interest rate, adding some of your past due balance to the back end of your loan or increasing the length of your loan to make a more affordable payment. In some states, it may also be accompanied by a reduction in the principal balance on your loan. As with anything, the bank has to see that you will have the capacity for repayment of this loan, and you will have to qualify.

If you believe that your financial situation is going to be ongoing and that you will not be able to afford the home even with better terms or if you are just wanting to sell, then your best option may be a short sale.

A Short Sale occurs when a bank agrees to allow you to sell your home and give them the proceeds even though the amount you give them is less than the total debt owed. That is where the term “Short Sale” comes from, because the sale amount comes up short of the amount needed to pay off the bank in full. So, you have to get the bank to ‘ok’ the amount that the house is being sold for.

To get started doing a Short Sale the first thing you are going to need is … An offer to buy your home. Fortunately for you, after 6 years and now going on almost 300 homes, we are in the business of buying homes and would probably be interested in yours. We can get you the offer you need to get the Short Sale process started. Once we provide the offer to purchase your home the bank will want us to make a strong case to them that you can no longer afford to stay and make payments. Many of these banks were given money by investors to fund your loans. These investors are now going to be taking a sizable loss and want some assurances that this is the best option for repayment of their capital.

To prove your ongoing hardship, the bank requires you to provide them with updated financial information that shows your current situation. Remember, that the only information that the bank has from you is what you gave them when you applied for the loan. In their mind, that reflects your situation. Many times there has been a loss of a job, illness, death, drop in value, etc. that is not reflected in your old financial information. So here is what they will want to see:

1.) Federal Tax Returns – Last 2 years (Generally only the front 2 pages)
2.) Pay stubs or equivalent documentation – last 2 pay periods
3.) Bank Statements – Last 2 months
4.) Mortgage Statement – This applies to any and all mortgages and or HELOC’s (Home Equity Lines of Credit), make sure it has a loan number on the statement.
5.) Hardship Letter – Letter of explanation to the bank as to why you got behind, why you cannot afford to make any further payments or catch up.
(examples of reasons would be: adjustable rate mortgage went up, illness, death in family, divorce, lost job, ect)
Also, in great detail in the letter, explain everything you know wrong with the house (roof leaks, plumbing problems, foundation, mold, carpet and paint, furnace, etc)
6.) Abstract for the property and any closing documents from when you purchased the home.
7.) Completed Fannie Mae Financial Statement
8.) Authorization to speak with your lender (We will provide this document)

Once you have gathered all of this information together, it is time to set an appointment to see the home and to get the offer signed to turn into the bank. One of the most common questions that I get from homeowners is: How long does the process take?

On average it takes about 90 days from start to finish. This can vary based upon many factors, such as the lender we are dealing with, whether we were supplied with a complete package of information, and the time of year. The average submission process goes like this:

Day 1: We receive a full Short Sale Package — We immediately send over an authorization to release information to the lender(s). This allows the lender to speak with us regarding your loan and submit the offer directly to them. It takes about 2-3 days for the bank to upload this information into their system.

Day 3-4: We fax/email the Short Sale Package — Once we have our authorization in the system we can proceed with presenting the offer. The lender tells us where they want the information sent and we send it. It will take a couple days to upload this information as well. Once the bank has received the package they will scan it for completeness and let us know whether there are additional documents that they would like to have signed or submitted.

Day 5-14: Daily calling to the bank to try to get a negotiator assigned. The negotiator is the person who will be our direct contact for the remainder of the negotiations. They will also be the person who will order the independent appraisal on the property.

Day 15-30: Calling the negotiator to attempt to expedite the ordering of the appraisal or BPO (Broker’s Price Opinion).

Day 30 – 45: Schedule and complete the Appraisal/ BPO.

Day 45-55: Time for the negotiator to get the results back from appraisal.

Day 55-80: Negotiate with lender, obtain approval

Day 80-100: Schedule closing and close.

This timeline is mean to provide a general base of reference and can vary from lender to lender.

So, there it is! I hope this has been helpful, the ball is now in your court. If you would like to sell your home, give us a call or shoot us an email to sandgrealestate@gmail.com and we would be happy to talk to you about whether your home would be a fit for us. Thanks, and we look forward to hearing from you.

Matthew Smith

www.shortsaledesmoines.com