The short sale process, from start to finish, can indeed be a very tedious and time consuming effort! As your short sale negotiator for Eduard K. Properties, we work closely with you to ensure that the proper steps, documentation and communications are utilized in order to achieve a successful outcome for the Seller. Of course, as with most real estate transactions, we cannot guarantee that a short sale is approved! There are circumstances that may hinder or stop the process, such as buyer cancellation, the lender/servicer’s loss mitigation department being overloaded, under paid and in some cases undertrained, paperwork being lost in transmission, lack of communication, and so on. A successful short sale negotiator must be tenacious, have in depth knowledge of the short sale process, have excellent time management skills and must be in constant contact with the lender/servicer. The following information is meant to give you an idea of the basic steps involved in the short sale process:
1. List property "For Sale" with agent on MLS at Fair Market Value. Fair market value is the listing price which will procure a buyer in 2-4 weeks. The agent must project ahead of the curve to foresee what the house will sell for quickly. Do not use old, past sold comps as most of those will not be helpful in determining today's value. Most current listings are worth far less than the comps from even four months ago.
2. Secure buyer at fair market value. The agent should negotiate the best possible contract and include concessions and commissions. The best possible contract does not always mean price. Short sale lenders prefer a quick closing to get the property off their books. The closing date on this contract should be for about 60-70 days after the contract is finalized.
3. Gather the short sale documents from the homeowner. Those documents include the hardship letter, FDMC financial form, 2 years tax returns, 2 month bank statements, last 2 pay stubs, and copies of the mortgage statements. You should also gather repair estimates, a listing agreement, comparable sales, and a current market analysis from either a contractor or your real estate agent. Please refer to the Document Checklist.
4. Develop short sale package to submit to the lender. Also, develop the HUD 1 to match the purchase and sales agreement
5. Fax the authorization to release loan information to the customer service department to make sure you are authorized to talk to the lender about the account.
6. Order payoffs from each lender.
7. Fax the short sale package to the lender. The short sale package should include the following:
a. Fax cover letter
b. Authorization to release loan information
c. Cover letter explaining the offer
d. Contract for purchase and sales with offer price
e. HUD 1
f. Listing agreement
g. Financial form FDMC
h. Hardship letter from the seller outlining their situation
i. Last 2 pay stubs
j. Last 2 bank statements
k. Last 2 years tax returns
l. The pre-approval letter for funds for the buyer.
m. There may be additional documentation required
o. Once completed, you should send the package to each mortgage holder. Send just the purchase and sales as well as the HUD 1 to the lien holders.
8. The package will then be assigned to a loss mitigator (LM) at each lender.
9. The file will be reviewed by a LM and interior BPO ordered by lenders.
10. Interior BPO Appointment: the Realtor must meet the BPO agent. A BPO is short for Broker's Price Opinion.
The BPO is a third party report of the value of the property. This value could be determined by either a real estate agent or an appraiser. Take the purchase and sales agreement, low comps, repair estimate, and the hardship letter to the BPO.
11. Interior BPO completed. This is the most crucial part of the entire short sale process. In order for a short sale offer to be accepted the interior BPO needs to come in near the offer price. The real estate agent should meet the BPO agent to try to validate the offer price. The lower the BPO value the better. This creates more options for the homeowner. The agent for the buyer should bring the purchase and sales agreement, the comparables that are near the offer price, the construction repair estimate, the listing history, and the hardship letter written the homeowner
who's trying to sell the house. See "Art of the BPO."
12. Find out the interior BPO value. Learn the value of the interior BPO by contacting and asking the mitigator "Where did the value come in?" You can also call the agent or appraiser who performed the BPO and ask them the same question.
13. Make sure to also ask the mitigator "Who owns the loan" and "What is the PMI coverage ratio?" Depending on the investor who owns the loan the rules of negotiation will vary widely.
14. Send counter offers to each lender. Following are general guidelines for what each line holder will accept: 1st Mortgage (80-100% of BPO), 2nd Mortgage (5-20% of balance owed), 3rd Mortgage (5-10% of balance owed), Liens (5-10% of balance owed). Counter offers are done via fax. Fax the counter offer to the loss mitigator at the bank. The counter offer should include the Option contract with an adjusted offer price and the HUD1 along with a cover letter explaining the counter offer.
15. Fax purchase and sales agreement and the HUD 1 with adjusted offer price to the lenders. Increase the buyer’s offer price through negotiations. All counters must be made in writing with purchase and sales agreement as well as the HUD 1. For both the HUD 1 and purchase and sales agreement the price must match. Then fax the purchase and sale and the HUD 1 to the loss mitigator for approval. Counter offers are done via fax. Fax the counter offer to the loss mitigator at the bank. The counter offer should include the contract with an adjusted offer price and the
HUD1 along with a cover letter explaining the counter offer.
16. Negotiate the final purchase price. The buyer must increase the offer price through negotiations. All counter offers must be made in writing with purchase and sales agreements and the HUD 1.
17. Receive the approval letters. Approval letters are issued by the loss mitigators when they accept the offer price. The approval letter will explain the closing date, the gross offer price, and the net proceeds that the lender will accept, the real estate agent commissions, the acceptable closing costs and any other lender closing instructions. The approval letter will need to be faxed to the title company or closing attorney.
18. The title company will then pull the title. If the title is not clear, you must negotiate additional liens.
19. Establish buyer's financing and receive "clear to close" from buyer's lender.
20. Seller and buyer sign HUD 1 and closing documents to close.
21. The title company files the deed and funds the closing.
22. Property transfers - The deed is recorded transferring the property to the buyer. The loans (previously in foreclosure) are paid off, mortgages released, and the foreclosure is then ceased and real estate agent commissions are paid.
If you've done some short sales, then you know there's plenty of time spent on the phone negotiating with the lender and pushing files forward. Our recommendation is to bring the negotiation in house and have someone else who is an expert negotiate the short sale for you. This way you can keep an eye on things, but can still focus your energy on getting deals, selling houses and earning commissions.
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