Short Sale Class Note

7 Replies

Hi everyone, I'm new to the BP, one week to be exact. Love to share something here as everyone else did.

I took a 3hr short sale class today in Long Island, NY. Just want to share some notes I took down and love to hear more about short sale strategy discussion.

*how to prepare

Required Documents for a short sale application

1. Authorization letter from seller

2. Hardship letter

3. Pay checks

4. Tax return 2 yrs

5. Short sale application

*As a realtor for the deal, ask bank for 6% commission (they don't always give you what you ask for)

*Example:

original mortgage $600,000

$400,000 offer for short sale

-$2000 attorney

-$264,000 commission 6%

-$2000 transfer tax

-$ x amount liens on the property

-$15,000 seller cash out money/relocation money (seller could get something from the deal depending on how you ask for the money. a lot of times seller walks away with nothing.)

-bank gets whatever left

*Prepare all the offers, letters, application and then submit them to the bank

*Bank receives the application and assigns it to certain person. You call the person to follow up the process. 

*Inform all the buyers that it's a long process and may take 6 months to 1 year. No guarantee. 

*when seller gets a 1099A ($200,000) after a short sale, ask cpa for insolvency form

*nowadays, you usually get $.85 on $1 from a short sale. If lower, bank would decline the application and rather go for auctions to get more money back.

I'm looking into one short sale deal myself. It will be my first investment property and I'd love to hear more about potential problems may occur during the process. The property I'm interested in is short sale for $270,000, which the ARV is around $360,000. I'm also thinking to put in around $60,000 for the rehab and then rent it out.

Well, that’s an overview of possibilities.....sort of like the procedures in a brain surgery.....but actually doing one is different. More important will be who the servicer/investor on the loan is, and their policies, along with the number of additional liens to be dealt with.

I'll chime in a few things based off things you mentioned.

  • Seller should be looking into if they are insolvent or have tax liabilities prior to receiving a 1099.
  • $15,000 relocation would be an anomaly nowadays. $3,000 is what is the most common for relocation nowadays since HAFA expired. Relocation money is paid out to eligible occupants based on servicer,  investor or mortgage insurer guidelines.  

My two cents is that 99% of those requirements don't apply to you as an investor.  Wouldn't apply to you as an agent for the seller of a short sale either but, you'd be a better agent than most knowing those docs are required and managed the submission of them in a timely manner.

You have four players to a short sale transaction, or five if its investor owned. Buyer, seller, agent, lender/servicer and possibly an investor. You may have a sixth player if the loan has MI on it as you would also need MI approval to proceed with a short sale. Wait, a 7th player if there are junior lien holders. Continuing with the junior lienholder scenario, it might only be a short sale to the junior but a full payoff to the senior so only a portion of the transaction would be a short sale. So you have potentially 7 entities with at times, conflicting objectives in a short sale. All have to be on the same page and all have to agree and all have to have the ability (Not just the willingness) to proceed. A 3 hour short sale class isn't gonna prepare you for that.

Arm yourself with data. Hire an agent with extensive short sale experience, and know going into it that we are not in 2012 anymore. as each day goes by, the short sale becomes less of a short sale and more of a pre-foreclosure sale (Assuming loan is in default). Yeah, they still exist but they are fewer and farther between now and the seller incentives for relocation assistance are also few and farther between.

Thank you for all the replies. Still have a lot of questions. Where do we find out if there are any junior lien holders against the house or the seller since the sellers may not tell all the truth? Only attorneys can help? Or there is some website we can buy those information.

Originally posted by @Monica Tao :

Thank you for all the replies. Still have a lot of questions. Where do we find out if there are any junior lien holders against the house or the seller since the sellers may not tell all the truth? Only attorneys can help? Or there is some website we can buy those information.

 Order a preliminary title report. Pay for it. It's the cheapest insurance policy you can ever think of buying. I put one of my loans into foreclosure. I was the junior lien holder with a balance of $50,000. I was also servicing a senior lien for Freddie Mac with a balance of $450,000. Some idiot bid at sale, $50,001, and won the auction. he excitedly demanded the keys from me after the sale. I gave him the keys and with it, the demand letter for $450,000 and comment that the senior lien holder was going into foreclosure in 30 days. The look on his face was less than excited. Moral of the story is...get a prelim. (he paid the $450,000 but his retirement funds were somewhat depleted after that)

@Ron S.   were are you seeing short sales .. in our area they are pretty much done and finished.

Originally posted by @Jay Hinrichs :

@Ron S.  were are you seeing short sales .. in our area they are pretty much done and finished.

 Got one now, in Redding...had 17 total short sales in 2017 that I did, all in the Northern portion of California. They exist but as logic would dictate, they are in pockets where no one wants to be. If the area hasn't recovered from the collapse (Value wise) by now, it probably never will!

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