Off Market Short Sell. What am I in for?

Question

I got a call from a lady who has a house that's under water, and we struck a price, the contract price is about 70k under what she owes, maybe 20k under market, but the property needs work.

Next week I'm rolling over to her property, to hand her our standard contract. Once she signs it, it's binding unless I write an exit option for her.. From what I have read online, most people submit offers to the seller's bank, and they can accept or reject that, but we are submitting a contract as part of my business SOP.

I know they could reject lowering/writing off her debt, and at the end of the day if she can't find someway to off load the balance on her loan, we wont be able to close the deal. Normally I don't do these, but figured it can't hurt.

Anything I need to know before I get going. Maybe some paperwork I should include, authorization letter to talk to the bank on her behalf?

Michael Ealy · Answer

Depending on the bank - each bank will have their own shortsale requirements and paperwork. However, generally, you need the following:

• Purchase contract signed by the owner and you, the buyer but with the clause: "sale is contingent to bank's approval of the shortsale".
• Authorization to Release information - given by the owner to YOU so you can negotiate with the bank in her behalf
• Hardship letter - written by the seller saying why she can't pay the mortgage and it's impossible for her to catch up
• Comparative Market Analysis done by a licensed real estate agent - specially of foreclosed properties in your area in the past 90-120 days within a 1 mile radius from the property. Your goal is to show the bank that foreclosing on this property will be costlier than accepting your offer. For example, if foreclosed properties sold for $50K, it makes sense for the bank to accept your offer of $60K.
• Repair estimate done by a licensed and bonded general contractor - showing how much repairs the property needs
• Pictures of the repairs needed - banks are afraid of mold and foundation/structural issues. If the property has these the chance of shortsale approval is higher
• Income Statement from the owner - showing how much her income is and the expenses she has without the house payment - showing why she can't afford the house payment anymore
• Cover letter from you - explaining why it makes sense for the bank to accept your shortsale offer

Good luck!

Christopher Phillips · Answer

@Levi T.

In a shortsale, the lender has to approve the sale. So, your contract won't really binding.

Essentially, the lender is going to need a shortsale package prepared to be sent in along with the contract. Yes, part of that includes the permission to be able to speak to the lender on the owner's behalf. Also some proof of hardship, financial records and such. The expected file will mostly depend on the lender or servicer you're dealing with. Most lenders won't even reply to your offer until the file is complete.

Once the file is complete, they'll put a negotiator in place. The negotiator will determine if the owner is eligible for a shortsale. If so, then order a BPO or an appraisal to make sure they are getting as close to market value as possible. Then they might entertain the offer or not.

What can complicate it more will be how many other liens are also attached and need to be negotiated. Eventually, they'll have to pass the file to the mortgage insurance people and the investors. If all is approved, a shortsale approval letter will be issued with the terms of the sale.

Alex Deacon · Answer

@Levi T. Levi you are in for a long learning process. Some banks will want the property to be listed with an agent before they even look at the contract. The process could take 6 months and never materialize. It could go smoothly also but usually not. I cant tell you what to do other than follow the process. The bank will assign someone from the loss mitigation department and you or the seller will have to communicate through them for the entire process. Its very frustrating so don't lose faith but just be ready and buckle your seat belt.

Michael Rajnherc · Answer

If you have the opportunity would you be able to reach out so that we can discuss some of the guidelines? I have found myself in a similar situation as the original poster. Thanks in advance.

Mike Cumbie · Answer

"
Next week I'm rolling over to her property, to hand her our standard contract. Once she signs it, it's binding unless I write an exit option for her.."

As a side note, you can have her sign a binding anything and she can give you ownership and all that. However you will still have the lien on the property to deal with. She can't help you with that. So you could give her $50,000 for her ownership but the bank still has a $650,000 lien on it so you can't sell it or rent it out or improve it or tear it down. They will foreclose on that property and own it and you are out the $50,000 you gave her for her ownership.

Mike Cumbie · Answer

Hi @Levi T.

@Alex Deacon has it right on. In order for a bank to authorize a short sale (at least in my area) the owner has to put in a hardship letter and request a short sale. They have to show financial hardship and be far enough behind that the bank decides to go with it. An item they want in with the letter is a CMA or BPO (A broker saying the market price is XYZ). Then they want to put it on the market and get a copy of the listing agreement with them having final say. Once an offer comes in they will drag it out for a while until the buyer finally leaves for something else. But then it is an "Approved short sale"

The bank doesn't care what you and her agree on because it's their money. She could say "Take it for $50 and let the bank lose $650,000". Why wouldn't she to save her credit?

So I have never seen an off market short sale because the bank wants as much as they can and without it being in the market they have to trust the person who owes them money and the person who wants it at a firesale price.

Just my 2 cents and good luck!

Brett Goldsmith · Answer

This would be a short sale. It sounds like you are going about structuring this incorrectly as there are certain guidelines that need to be met per most investor guidelines. Pm'd you.

Off Market Short Sell. What am I in for?

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