What is a short sale and what is required to execute one ?
A short sale is a sale of real estate in which the lender agrees to accept less than what is owed to release their lien against the property that secures the loan. It may come in the form of a first lien on home mortgage, a lien for a second mortgage or a Home Equity Line of Credit (HELOC). Short sales allows the lender to "be the bank" and to own the asset. The 5 most common mistakes with regards to short sales include (1) avoidance of short sales altogether (2) not knowing when to walk away (3) not understanding how to prepare a Submission package (4) inaccuracy in pricing the property (5) not knowing the state's foreclosure law.
There are certain criteria that must be in place in order to execute a short sale. A lender must believe that they will receive more from the short sale than at auction. A lender cannot commit for beneficiery without their prior approval. Finally the lender cannot commit for note insurer without prior approval. Also, the owner cannot make the payments and has no other assets to satisfy the debt. With regards to the property, the property value must be less than the loan value. Finally the offer must be equal or greater than an auction would provide.
To successfully execute a short sale, an orderly plan action must be in place. The transaction must be pre-screened by using a preliminary title screen and judgment reports. A thorough knowledge and understanding of state foreclosure laws as well as preparation of a complete and accurate submission package in order to ensure success in a short sale transaction. A complete submission package include:
- Valid purchase and sales agreement
- Hardship letter written by the homeowner
- Accurate income and expense summary
- Hud 1 - Preliminary Settlement Statement
- Broker's Price Opinion (BPO) or appraisal
- MLS comps and/or Recent Sales
- Repair Estimates with pictures
- Proof of Funds
- Cover Letter
For more information please refer to our Webinar about short sales. Click here to download the PDF. Click here to watch the webinar video.
