Short Sales Part II
“Short Sales” are quickly becoming today’s number one growing market niche here in central Florida. I recently went to a continuing education seminar in which I found some truly amazing statistics and information. As of right now 1 in every 8 transactions is a short sale and by next year we expect that number to grow to 1 in every 5. So mortgage companies, agents, buyers and sellers better prepare themselves for the upcoming market because we don’t expect it to change for the next 3 or 4 years. That means we can either embrace it or risk the chance of being left behind.
Although each bank or mortgage company has different criteria or documentation that is necessary, it would be best for each seller to prepare themselves by obtaining all of the following information so when its time to present a package for consideration by the bank it is already in the hands of the agent . Not being prepared or handing in a partial package only means that the loan mitigation officer will surely place your file at the bottom of the pile which will delay or cause the transaction to cancel.
Things a seller needs….
- Three most recent bank statements for all checking accounts for all borrowers
- Three most recent bank statements for all saving accounts for all borrowers
- W2’s from the past 2 years for all borrowers.
- Income tax returns from the past 2 years for all borrowers.
- Past 3 paycheck stubs for all borrowers.
- Copies of all bills for all borrowers from the past 2 months. This will be used to compile a financial worksheet. It should include....auto loans, alimony, child support, child care, credit card bills, utility bills, telephone bills, cell phone bills, auto insurance, health insurance, life insurance, doctor bills, dentist bills, pharmaceutical bills, groceries, school lunches, gas, student loans, other loans and miscellaneous bills.
- A STRONG hardship letter that briefly describes why the homeowner is unable to meet his or her loan payments
- Any other documentation which is proof of hardship. Such as….hospital bills, doctor bills, home repair bills, documentation of unemployment, documentation of incarceration, a death certificate or a divorce decree.
Things the agent should have…
- A copy of the listing agreement
- A preliminary HUD-1
- A recent Comparative Market Analysis
- A copy of the executed contract signed by both parties with the a contingency in it which states “Subject to third party approval”
- Proof of homeowner’s insurance coverage
- Information about any additional liens on the home
Things the buyer should know and expect….
- The bank or mortgage company will take at least 30 days to approve or reject the offer made on the house. This is not the type of transaction a buyer should consider if they have time constraints. Such as their lease expires in 30 days and they need to move, or they are closing on their house and need to be out in 45 days.
- Once approved the bank or mortgage company will expect you to close in 30 days. There are no exceptions. They do not want to carry a house on their books any longer than necessary.
- How much money the seller owes on the property DOES NOT MATTER. The bank or mortgage company pays an independent broker to do a broker’s price opinion and will accept 80% of the FAIR MARKET VALUE AFTER ALL CLOSING COSTS ARE PAID. That means after the agents commissions, the doc stamps, the title insurance, the title fees, the legal fees for any pre-foreclosure proceedings, and any other miscellaneous fees that are applicable. A general rule of thumb is the closing costs will total up to approximately 10%. So buyers can expect to pay 90% of the fair market value.
- The contract should be “AS-IS”. The bank will not let the seller pay for any repairs. Remember the seller is asking the bank to accept a short sale because they are financially insolvent. If they have money to pay for repairs, then that money should be going to the bank to pay for the mortgage.
Things the seller should know and expect….
- The seller can’t receive any proceeds from the closing. That means NO MONEY, NOTHING.
- The seller should get all of the paperwork ready immediately. Even though the banks will take about 30 days to view your file, you don’t want them to flag your file and put it at the bottom again. This means you will have to start all over.
- The pre-foreclosure process starts the day after the grace period ends. This usually means the 16th of the month. The first contact the bank will have with you will be around day 45.
- Doing a short sale will negatively affect your credit score but it is repairable in the immediate future by making your other debt obligations on time. If the bank forecloses on your house, it will remain on your credit for at least 7 years and it will drop your credit score by almost double the amount.
- Banks will either pass a deficiency judgment or 1099 the seller for the amount of the loss. Sellers should seek the advice from their tax accountant as to how it will affect them.
So what we have is a winning proposition for everybody. The buyer gets to buy a house at a discounted rate, the bank gets to avoid foreclosing on a clients property, and the seller gets to sell their house which might have been foreclosed on which is a very STRESSFUL situation.