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Will All Banks Do Short Sales?
Article Author:
Richard Reichmann
The typical
uneducated real estate investor in today's
market is running like a a scared rabbit
away from any deal that doesn't have tons of
equity instead of trying to be a bit more
creative in structuring the transaction for
the benefit of all involved. Yes, including
or friend the loss mitigation officer at the
bank.
It is my opinion that in this market you
would be hard pressed to find a bank that
won't do a short sale if shown what they
will actually save by accepting the short
sale. Banks have more REOs (real estate
owned) than they know what to do with at
this point, they certainly don't need to add
to their pile of misery.
Remember the bank that accepts a short sale
is doing this for the seller not for the
investor. If the seller can justify to the
bank that have have made an effort to sell
the property by listing with a broker, and
have been unsuccessful in getting the price
need to pay off the loan it will probably be
considered.
Items normally asked of the seller by the
bank are a hardship letter which describes
the set of circumstances that let to the
delinquency of the loan as well as pay stubs
for a number of months and two years tax
returns. Most banks will also require a
current mini financial statement also well
as a BPO (broker price opinion) which is the
brokers opinion as to the present value of
the property in it's as is condition.
Presently banks will normally save between
$29,000 and $31,000 if they accept the short
sale in lieu of taking back the property
which is now a vacant property subject to
vandalism and more of a possibility of
someone being injured on the property. The
worse shape the property is in the more
likely the bank will consider the short
sale.
Banks don't like non-performing assets, it
effects their lending limits as well as
their stock prices in many cases. Key point
being, never exaggerate the repairs needed
and always be upfront with the bank as far
as the condition of the property and the
financial position of the seller.
Make certain the seller know that there is
also the possibility the the bank will place
a deficiency judgement on the for the
balance owed on the property after the short
sale takes place. Although all lenders have
varying requirements and may demand that a
borrower submit a wide array of
documentation, the following steps will give
you a pretty good idea of what to expect.
You may need to make a half dozen phone
calls before you find the person responsible
for handling short sales. You do not want to
talk to the work out department, you want
the supervisor's name, the name of the
individual capable of making a decision.
Lenders typically do not want to disclose
any of your personal information without
written authorization to do so. If you are
working with a real estate agent, closing
agent, title company or lawyer, you will
receive better cooperation if you write a
letter to the lender giving the lender
permission to talk with those specific
interested parties about your loan.
The letter should include the property
address, loan reference number, your name,
the date, your agent's name & contact
information, preliminary net sheet which is
an estimated closing statement that shows
the sales price you expect to receive and
all the costs of sale, unpaid loan balances,
outstanding payments due and late fees,
including real estate commissions, if any.
Your closing agent or lawyer should be able
to prepare this for you, if you do not know
how to calculate any of these fees. If the
bottom line shows cash to the seller, you
will not get a short sale. Lenders are not
in the charity business and often require
assurance that the debtor cannot pay back
any of the debt that it is forgiving.
If your bank statements reflect
unaccountable deposits, large cash
withdrawals or an unusual number of checks,
it's probably a good idea to explain each of
those line items to the lender. In addition,
the lender might want you to account for
each and every deposit so it can determine
whether deposits will continue.
Sometimes markets decline and property
values fall. If this is part of the reason
that you cannot sell your home for enough to
pay off the lender, this fact should be
substantiated for the lender through a
comparative market analysis (CMA).
When you reach an agreement to sell with a
prospective purchaser, the lender will want
a copy of the offer, along with a copy of
your listing agreement. Be prepared for the
lender to renegotiate commissions and to
refuse to allow payment of certain items
such as home protection plans or termite
inspections.
If everything goes well, the lender will
approve your short sale. As part of the
negotiation, you might ask that the lender
not report adverse credit to the credit
reporting agencies, but realize that the
lender is under no obligation to accommodate
this request.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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