Short Sales

[N/A N/A]

Whats the easiest way to learn the short sale process

[Jim Gordon]

This is some information that was given to me and I thought I would pass it along.

How to Write a Contract for a Short Sale

Purchasing a distressed property for a discount directly from a lender - not the homeowner - is considered a short sale.
Often, there is little or no equity in properties that are in the foreclosure process because the homeowners owe Close to - If not more than - the value of the loans. In these cases, lenders will sometimes accept discountson mortgages to avoid potential foreclosures and bankruptcies
Why?
Banks and lending institutions don't like bad loans on their books. These organizations are not in the business of selling real estate. It may cost them considerably more time and money to sell these properties at the conclusion of the foreclosure process.
Therefore, if opportunities emerge in which lenders can sell distressed properties without registering big losses, they will do it.
For example, consider that a homeowner with a $200,000 mortgage is late on his or her loan payments and is facing foreclosure. With the consent of the homeowner, you offer his or her lender $180,000 as full payment for the loan, which is accepted. That means you instantly save $20,000 on a real estate investment.
This is a short sale.

Getting started
Negotiating a short sale with a lender can be complicated But with careful research and patience, it is possible for you to earn big profits with short sale deals.
The first step in this process is to identify potential investment opportunities. Be sure to work with an educated real estate professional that has completed the short sale process and can help guide you through the approval process.
To be most successful, we recommend your contract to be very "clean'. In other words, no contingencies and remove unrealistic dates that the lender cannot honor. A lender will accept a contract with a financing contingency, but be prepared to supply a pre-approval letter with specific information regarding your current financial situation. The lender will not accept a contract requiring the seller to provide financing assistance, such as points, pre-paids and or closing costs to be paid by the seller Also, the lender will not allow the seller to pay for home warranties or any inspections to the property. The lender is willing to allow the sale, providing the seller does not provide any financial assistance to the buyer.

Calling lenders
It's important to be very patient. When a lender allows a short sale, they are losing money. They will not cash in on mortgage insurance and will be losing a great deal of money The Loss Mitigation Dept is very busy, most departments have one lender representative that service 4-fj statss. It may take weeks to get an answer, but if the listing agent is educated in working with a short safe, it should not take more than two weeks before a BPO would be completed Final approval will take an additional 3-1 weeks, taking the complete process about 6 weeks. Once the final approval is given, the Lender will expect the property to close within 3-5 days.

Broker's Price Opinion (BPO)
Lenders generally hire local real estate brokers or appraisers to evaluate properties in the foreclosure process prior to selling them at public auction. These are referred to as a Broker's Price Opinion (BPO). Essentially, 3 Realtor® - based on the condition of the home and current market conditions - provides the lender with an estimate for the value of the property. The BPO is the key piece of information that a lender will rely on to make a decision regarding a short sale.
The lower the estimate, the better it is for you. Typically, ihe lender will order three BPOs. Your offer must be within the guidelines of these three BPOs. If your offer is lower, the bank will require your offer to be raised to fit within the BPOs high low range. This is why it is very important to work with an educated real estate professional in the short sale process. Lenders want to get rid of distressed properties as soon as possible, but they aren't going to self them for ridiculously low prices Many short sates, in (act, fall through if the BPOs come in too high. When properties are in good condition, it is hard to convince lenders that they are worth much less than the appraised values.

Hardship letter
Most lenders will request a hardship letter that details the reasons a homeowner has not made his or her mortgage payments. This is a bit strange because the borrower who is in default must prove that he or she is broke and unable to afford the payments.
This is a fairly extensive request, which may require the homeowner to submit pay stubs, tax records and other personal financial records, along with the letter. It is essential that you submit everything that is requested.
Otherwise, your offer will not be accepted.
Creating an effective and compelling hardship letter requires creativity. Without lying, the letter should paint a very bleak picture of She situation. If neither you nor the homeowner possesses decent writing skills, it may be in your collective best interests to seek the assistance of a professional - it's worth it.

HUD-1 settlement statement
A lender will generally require a written contract thai has been accepted by the homeowner. A preliminaryHUD-1 seltlemenl statement will reassure the lender that the homeowner isn't receiving any cash from the
deal.
The HUD-1 form requires you to itemize all charges imposed upon you and the homeowner for the real estatetransaction. Essentially, it is a complete list of the incoming and outgoing funds.The contract should be written so that the buyer pays all costs associated with the deal. And, that Ihe "net cash" to the homeowner is the precise amount of the short pay to Ihe lender.
It is important to use a title company who is familiar with the short sale process.

Reminders when writing a Short Sale Contract
1. No seller concession!, including a Home Warranty, points, pre-paids and/or closing costs
2. Seller must accept the terms before the contract is presented to the Lender (third party) for approval. Once the Seller accepts the terms, His property will be officially pending. Earnest money will be collected and the buyer is expected to complete due diligence. The contract will need to be approved with a contingency of final approval of theLender (third party)
3. the contract must contain a contingency that the contract Is contingent upon a third party approval. (This usually takes 3-6 weeks)
4. Be sure to allow enough time for theLender (third party) to perform due diligence before closing. A good rule of thumb is six weeks.
5. Ask the Listing Agent for a recommendation for a Title Company. A title company who Is proficient in short sales Is a must!
6. Inspections are fine and encouraged. However, the Lender (third party) will not pay for any repairs to the property. If the buyer request repairs, the negotiations will need to be outside the contract
7. Ask the Listing Agent If you need help writing an offer. The Listing Agent can meet directly with you and you client to prepare the offer. Ask if you need help!