An Introduction and Overview

Of TheShort Sale Process

An Introduction and Overview

Of TheShort Sale Process

What Are the Remedies for Someone Who Is Delinquent

on the Loan? • Repayment Plan : An agreement where the homeowner

resumes making their regular monthly payments, in addition to a portion of the past due payments.

•Modification : If a homeowner can make payments on their loan but don’t have enough money to bring to the account current or cannot afford the current payment, the lender may be able to modify the terms of the original loan to make the payments more affordable.

•Partial Claim (FHA only) : If the homeowner’s mortgage is FHA insured, they may qualify for an interest-free loan from their mortgage guarantor in order to make their account current.

What Are the Options for Homeowners Who Need to

Give up Their Home?• Short Sale : If the payoff amount is greater than the

fair market value of the property, they may qualify to sell their home for less than they owe.

•Assumption : A qualified buyer may be able to assume their mortgage. Even if the mortgage documentation states it is not assumable.

•Deed-in-lieu : If they had their property listed for a period of time with no activity, the lender may accept title to the property as settlement for the debt.

What Is a “Short Sale?”

•Also known as a “Short Payoff,” •“Pre-foreclosure,” or “Upside

Down” sale.

•This is a situation where what the homeowner owes on the home is

more than its market value.

•In other words, a short sale is a situation where the proceeds of a home sale won’t pay the property

liens in total.

Who Is Eligible to Attempt a Short Sale?

To be eligible for a short sale, the borrower must be experiencing document–able financial hardship that is the result of an involuntary reduction in income or an unavoidable increase in expenses, such as a long-term layoff, job loss, mandatory pay reduction, disability or illness that results in a decrease in income or an increase in major medical expenses, death of the principal wage earner or a decline in a self-employed borrower’s earnings.

Examples Include:1. Unemployment2. Reduction in income3. An illness or injury that prevents making mortgage payments4. A divorce that affects your ability to make mortgage payments5. Major, unexpected life events that affects your ability to make mortgage payments.

Eligibility to Attempt a Short Sale Continued:

A borrower is not eligible for a pre-foreclosure sale if their financial hardship results from circumstances that they can control and for which they can help plan. Examples include seasonal layoff, voluntarily quitting a job or reducing the number of hours worked or reducing and/or eliminating income as a result of returning to school. •Typically, the borrower should be an owner-occupant in a single-family unit. Although non owner occupied properties can be considered on a case basis.•“Walk-aways,” are those homeowners who have abandoned their mortgage obligations despite a continued ability to pay, are typically not given the opportunity for a short sale.•Mortgagors who become good faith participants in the short sale procedure will most times not be pursued for deficiency judgments. Different lenders have different policies and procedures.

Why Would a Lender Accept a

“Short Sale?”• $40,000.00 is the average loss on a financially-

distressed property

• The sooner the property is sold, the greater the recovery

• REO is always the worse chance of recovery

• Lenders know a property shows best when it’s in move-in condition

What Is the Greatest Challenge to “Short Sales?”

• Very few banks and loan servicers own their loans, so they may not have the ultimate say-so in negotiations.

• There could be another investor and maybe a mortgage insurer involved. All have to sign off to approve the Short Sale.

• THIS TAKES TIME!• THIS COULD CAUSE SUBSTANITAL DELAY IN A APPROVING

AND CLOSING THE SHORT SALE!• Subordinate lien holders say second mortgage, judgment

and/or tax lien holders also have to agree to the short sale and release their lien interest. Often times the senior lien holder has certain limits as to how much a junior lien holder can receive. Obviously, this process can become complicated.

Why Would a Homeowner Want to Do a “Short Sale?”

•Less Damage to Their Credit Report

•No Record of the Completed Foreclosure

How Do You Handle a “Short Sale?”

• The most important aspect to handling a short sale application is the collection and processing of the required information.

• Step One- Meet with the borrower.• Make sure they have all the paperwork related to the

home available for you to review.

• Step two- Conduct an in-depth interview and advice session with the borrower.

Note in Particular:

• All borrowers who signed on the note.• Any divorces, separations, or other issues that may have

affected the property.• The current lender’s name, address and account number

and servicer information.• The type of loan they have (FHA, VA, non-conforming,

FNMA, AMR or a fixed rate).• Their mortgage history, including payment history, and

last documented payment made.• Any information they may have received from the lender

and whether a foreclosure had been initiated or whether any other arrangements had to been set up with the lender in the past.

• Where are they in the timeline?

Note in Particular:

• If they are in foreclosure, consider offering to send the “Qualified Written Request under the RESPA by borrower.” It will stay further action on the foreclosure for 60 days.

• They need to understand they should stay in the home to do a workout.

• They will have to fill out any hardship forms and assemble the supporting documentation.

• If they are or have been in foreclosure, the status of the filling.

Information Required to Process the

Short Sale RequestA short sale request is not unlike a loan application to obtain a mortgage. Specific information, much the same as required for a loan approval, is required prior to the review of the request in the loss mitigation process. This is very much like underwriting a mortgage loan approval application and should be viewed as such.

The goal of the loss mitigation process is for the lender to agree that given the specific circumstances in this request, al parties, the lender and the borrower, are better served by the lender accepting a discounted payoff to release the mortgage lien against the property as opposed to completing the foreclosure process to take the title to the property.

Information Required to Process the

Short Sale Request

The role of the loss mitigator is similar to that of the underwriter, in that their mission is to protect the interest of the lender to the best of their ability. The proper information is required to allow them to make the decision to discount the outstanding loan.

If there is more than one lender holding a mortgage on the property the same information is required for each lender.

Typically Required Documentation

• Most recent 2 months bank statements for checking, savings, and any other asset accounts such as a 401-K or investment accounts.– If there are not monthly statements, then provide the most

recent account statement.

• Most recent 30 days pay stubs showing current and YTD income for all borrowers.

• Last 2 years (2005-2006) or (2006-2007) of federal income tax returns, complete with all schedules.– Include copies of all w-2’s and 1099’s received.– While this may present a problem for some, this information is

critical for the submission package.

• Most recent monthly statement from the mortgage lender(s);– This provides accurate contact information as well as the current

status of the loan.

Typically Required Documentation

• Copies of ANY previous communication to or from the lender(s) and/or the foreclosure attorneys. – Important

• If ANY of the requested information is unavailable, please write a brief letter of explanation as to why it is unavailable. – Example: tax returns cannot be provided because they did

not file taxes for the last year or two.– Incomplete information packages often result in denial of

acceptance of the short sale request.

• Again, it is important to remember that this is like a mortgage loan application package and incomplete packages result in denial of the application. This point cannot be stressed enough!

A complete listing of all the debts and monthly

obligations owed by the borrower

• A credit report is the optimum information, listing all the creditors, balances owed, minimum monthly payments and status of the current payment history.

• If the credit report cannot be supplied, a copy of ALL monthly bills, such as credit cards, auto loans, personal/student loans, child support payments, utility bills and the like will help tremendously in obtaining a clear picture of the financial status of the borrower.

• All submissions should include a signed Freddie Mac form 1126, which is the preferred financial statement required by most lenders. (See the financial worksheet and form 1126 attached).

Pay stubs, bank statements and asset account

statements• Such as a 401-K, pension and investment accounts are

required to show the income, cash flow and assets of the borrower.– If income is derived from Social Security, disability or

retirement sources, they should be documented as well.

• If these supporting documents cannot be provided, then letters of explanation are required.– Examples are people being paid “under the table” or those

who have no bank accounts due to Chex Systems.• IT ALL MUST BE EXPLAINED!

A signed “Authorization to

ReleaseInformation” form• This allows the lender to discuss the borrowers

information with a designated third party.

• Again, this is the first and most important form.– Without this form, the lender will not communicate

with the negotiator.

Additional Information Is Required

• Regarding any Home Owners Associations (HOA).• Property tax status• Other lien holders such as junior mortgages, Home

Equity Lines of credit, loans(second mortgage) and or judgment or tax liens.

• All information is critical to preparing an accurate submission package.– A little more time and effort spent here will save a lot of

problems down the line.– It is far better to have more information at the beginning

than to have to try and get it later.– SET THE PROPER EXPECTATION FROM THE START!

Additional information regarding the property

condition, repairs and others are required as well

• You must be able to document your basis of valuation of the property form the start.

• This will be covered in greater detail under the BPO topic later in this document, but be advised that the detailed documentation is required.– This information is required from the investor as

opposed to the homeowner. – You must be prepared to document your basis for

the discounted payoff you are seeking.– Property condition, repairs, comparative values, and

market times must all be readily available to defend your offer!

For Additional Information

(330) 232-4004

Bob@Laurustitle.com