So…..You’ve evaluated a potential short sale and decided that it meets your investment criteria. You have the information you need from a listing Realtor to submit the short sale package to the lender. Now you need to gather information from the homeowner.
Bill: When we decide to move forward with a short sale, we give the homeowner all the paperwork that needs to be completed as well as a list of the documents we need from them. We tell them that time is of the essence in a short sale and we give them a specific date (usually 2-4 days) to get everything back to us.
Jackie: This is very important. If you can’t get the homeowner to gather the necessary documents to submit the package in a timely fashion, chances are you’re going to have problems throughout the short sale process. This speaks to two important issues. First, their motivation to do the short sale and second, how well the process and procedures have been explained to them.
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Required Components of a Short Sale Package
Bill: Along with completing the necessary paperwork – contract, disclosures and third party authorization, the homeowner needs to prepare a hardship letter, and financial statement. We also need the last two months of bank statements (all accounts that they have), last two pay stubs, and the last two years of federal income tax returns. If there are lender specific documents that we know will be required, we get those completed also with the initial paperwork. If you know the lender is going to ask for them, it saves time to provide them with the initial package.
Jackie: If they are retired or unemployed, they need to supply their benefit letter from Social Security or their state unemployment determination letter. If they are unemployed and have no income coming in, we have them write a letter stating that. We also get a letter from them if they have no bank account, or have gotten an extension on filing their income tax. If they can’t find a tax return, you can have them sign an IRS-4506 which allows the lender to order returns from the IRS.
The Importance of Being Diligent
Bill: We thoroughly review the short sale package when we get it to determine that it is complete, with nothing left out, and everything signed. We do not send a file to our negotiator to submit until we know it is complete. It’s surprising how often documents come back with a signature missing, or only one bank statement, etc. This makes our negotiator happy and it also saves time. If you wait for the negotiator to tell you that something is missing and then have to ask the homeowner for it, you can easily waste a week. This is one of the reasons that our negotiator likes working with us.
Jackie: It’s important that you set expectations and establish good communications right from the beginning. Doing things correctly in the beginning will speed up the negotiation process. We make sure we have an email address, and cell phone numbers. Our goal is to turn around requests from the lender in 24 hours, and we make sure that our homeowners understand that. Setting these expectations and following them also projects a professional image for us that helps with home owner confidence in our ability to help achieve their short sale.
Bill: We explain that when a lender makes a request for an updated bank statement, pay stubs, etc., they are going to stop working on the file until the requested information is received. To be pro active, we ask the home owner to automatically send us their new bank statements and pay stubs each month. By the first of May we can request new tax returns.
Jackie: As we begin a new year by continuing last year’s challenges and looking forward to new opportunities, it is a time to look at what is important in our lives. As we work with the short sale market, we see home owners that have lost jobs, have serious medical issues and many other hardships that are causing them to not only lose their home, but in most instances much of their life savings. Basically, they are starting over. These are opportunities for us in the real estate market. They are supplementing the old opportunities of our development and building business until that market improves again. What we do is focus on our good health, friends, fun times, great marriage and the other good things in our life. When changes or new challenges arise, we do our best to adapt and work hard to be successful. We are reminded every day that many people are facing serious hardships and we are thankful that we have what is truly important for success and happiness.
Bill: Cheers to that! We wish all of the friends and business partners that we have met on BiggerPockets an exciting and prosperous New Year in whatever area of real estate investment that you practice in! Happy New Year!
Photo: Susan Goulding