As a real estate investor that handles short sales, you know that there are a lot of details that need attention in order to successfully close a deal. There are many steps in the process, and to do it right, you have to make sure you follow each step. This is important because you’re working with a homeowner who has made the decision to put their faith in you to sell their house and help them out of a difficult financial situation. You can’t let them down by overlooking an important detail. One of the biggest pieces of your process involves the short sale package. This is a set of documents that you provide to the lender to help determine the outcome of the deal.
Smart investors know that one way to encourage lenders to work with you on negotiations is to have all your paperwork together in one spot, ready to go. Loss mitigators can easily be juggling hundreds of files at once, so if yours is not complete, it will go to the bottom of the pile.
To begin with, find out from the lender and mortgage investor what they need from you, and in what form. For your short sale package, there are basically two sets of documents – one set that the seller needs to sign, and another set that the seller gives you which proves certain things about their financial situation.
Below is a list of things that you’ll need, signed, from the seller:
- Authorization Form: This gives you the legal right to speak to everyone about the short sale on the seller’s behalf. Without this, nobody will even consider speaking to you.
- Option Contract for Purchase & Sale Agreement: This contract expands the Purchase and Sale Agreement to include special provisions for short sale transactions, giving you the control you need to move ahead or back away, depending on factors out of your control.
- Authorization to Release Information: This informal document needs to be signed and dated by the homeowner; it states that the seller is agreeing to allow the buyer (you) to talk to the lender about the short sale offer and anything else pertaining to the purchase and sale of the property. This allows the buyer to order payoffs, pull title, send in a purchase offer and negotiate the deal. Lenders require this document. They want it faxed to them and posted in their system before anything else can take place.
- Affidavit of Understanding: Protect yourself and the seller from misunderstandings. Put it in writing that you understand their situation and they understand yours. Disclose everything you need to here. Don’t skip this one!
- Freddie Mac Borrower’s Financial Form #1126: The Freddie Mac form is almost universally accepted by lenders. This shows the seller’s cash-flow versus expenses. Have the seller give you the information and sign the form. Next, ask the seller to give you copies of the following documents. Better yet, borrow the originals and make copies for them. Make sure you have crystal clear copies when you fax all this stuff to the lender.
- Hardship letter: This is a handwritten letter from the seller to the lender explaining why their current financial situation is bad enough for the lender to allow their mortgage loan to be discounted. It explains that they will no longer be able to make payments on their property, and why. It should include events that caused the financial hardship.
- Mortgage statement: Find out ahead of time, but the lender may only need the most recent one.
- Last two tax returns, bank statements, and pay stubs: These are needed to verify the information on the Financial Budget Form and provide an accurate picture of the homeowner’s finances. For the tax returns, it must be the full returns, not just the W-2s.
Finally, you need to gather the following information:
- Listing Agreement: If the property is already listed with a real estate agent, include a copy of their contract.
- Detailed repair estimates: This can be a simple list of major repairs and an estimate of what it will cost to make each repair. Total the individual estimates at the bottom of the page.
- Comparable sales: Properties that sold in the area near the subject property. The comps will affirm or validate your offer.
- Current Market Analysis (CMA): Accurately depicts the value of a property, generally gathered by a realtor.
- Pictures: Take photos of the damage on the house and submit those as proof of needed repairs.
- Pre-approval letter from the buyer’s financing: The lender will feel a lot better if you can prove that there is a serious offer on the table before they agree to a short sale.
- Preliminary HUD-1: Shows the lender what the complete transaction would look like if they chose to accept your initial offer. It breaks down all the fees and expenses to close the transaction. It explains who will get the money at the closing of the deal, and shows that the seller will receive no proceeds from the sale of their property.
- Cover Letter: This is a written explanation of the offer and the short sale package. It tells the story of the deal and the homeowner.
When you have everything together, have the documents notarized. Fax the whole package to the lender (make sure your copies are clear and legible!), and follow up with a phone call to make sure all pages were received and forwarded to the right department. For more details on requirements for a short sale and how to smoothly move through the process, register to become a Real Estate Rebel today.