Monday, September 24, 2007

Steps to a Short Sale

1. Call your lender or give a written agreement to your real estate agent for permission to speak with your lender on your behalf. The agreement, which can be a power of attorney, should specify the property address and loan number. Your agent will also need the last four digits of your social security number for verification with your lender. You or your agent should ask the lender if they will consider a short sale before beginning.
2. Place the property on the market for fair market value. Most lenders will only consider offers that are at least 75-80% of what the property appraises for, based on their independent appraisal.
3. When you get a contract, ensure that it states it is "contingent on seller's mortgage holder's approval". Sign the contract.
4. Send the contract to the bank with the following documents: mortgage pre-approval letter for the buyer, hardship letter which explains why you need a short sale, financial worksheet itemizing all income and expenses (may be provided by lender), last two years tax returns, recent pay stubs, recent bank statements, copy of agent's listing agreement, copy of MLS printout, estimated net sheet.
5. Expect to wait two to eight weeks for final approval from the bank "negotiator". During this time the lender will order an independent appraiser or broker price opinion of the property.
6. If approved, the lender will provide a letter with instructions to the title agent regarding the reduced pay-off amount. Typically, the lender will absorb all closing costs including conveyance taxes and broker fees. Escrow monies, however, may not be returned to the borrower, such as for taxes and insurance, and will be retained by the lender to cover some of the loss.
7. Consult your accountant regarding tax implications of a short sale. The forgiven debt may be considered income, and taxable by the federal government.

Let me know if I may provide assistance in this matter.

3 Comments:

Anonymous Kingpin said...

i've subscribed to your shorsale RSS feed, i think this is very good info.
i have a question. am i to infer that the applicable numbers used in an FHA Short Sale are first (BPO needs to be 63% of the balanced owed or the orginal mortgage?) after that determination is made, is it then 82% of the BPO number. ie-either orginal mortgage or mortgage balance 100,000.00, 63% of 100,000.00 = 63,000.00, 82% of 63,000.00 = 51,660.00 (51,660.00 my starting number for negotiation)
thank you

June 13, 2008 at 9:42:00 AM CDT  
Blogger Wendy Rulnick said...

The HUD Short Sale guidelines say the appraisal should or 63% of the "outstanding" mortgage. If it is not, because market value has dropped so dramatically, I hypothesize HUD has another procedure in place. It is not mentioned in the relevant article on their website. The HUD website states that the NET proceeds-after closing costs, prorations, real estate commission, etc, must be at least 82% of value (as determined by appraisal/BPO.

June 13, 2008 at 6:15:00 PM CDT  
Blogger Wendy Rulnick said...

The HUD Short Sale guidelines say the appraisal should or 63% of the "outstanding" mortgage. If it is not, because market value has dropped so dramatically, I hypothesize HUD has another procedure in place. It is not mentioned in the relevant article on their website. The HUD website states that the NET proceeds-after closing costs, prorations, real estate commission, etc, must be at least 82% of value (as determined by appraisal/BPO.

June 13, 2008 at 6:15:00 PM CDT  

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