Short Sales: A Primer

Do You Want to Regain Control?Can You Talk the Talk?Can You Talk the Talk?

What Do They Want From You?Where Do You Start?Presented by:

W d S ith R l E t tWendy Smith Real Estatewww.WendySmithRealEstate.com

Do You Want to Regain Control?

For homeowners facing daunting financial crisis keeping up with mortgage crisis, keeping up with mortgage payments can become overwhelming.

If you are among the millions of Americans struggling with severe loss of Americans struggling with severe loss of income or negative equity, home retention through a load modification program may not be a viable solution.Continue reading to learn how to avoid foreclosure.

At times, disposing of the house –whether by short sale foreclosure or whether by short sale, foreclosure, or deed-in-lieu – can be the best decision.

Being proactive helps minimize stress and frees you to concentrate on resolving and frees you to concentrate on resolving other problems more quickly.

Many experts agree that a short sale is often a superior and more beneficial often a superior and more beneficial outcome for the homeowner facing the loss of a primary residence. p y

It is a matter of damage control – a short It is a matter of damage control a short sale is far less damaging than foreclosure for most people. However, it’s always a smart idea to consult with your accountant regarding tax issues.

Once the decision is made to dispose of the property the homeowner can re-gain the property, the homeowner can re gain control of the financial crisis and develop an exit strategy. gy

Timing Your ExitTiming Your ExitEvery short sale is different, but the following explanation describes the g ptypical process.

1.The seller discusses the short sale process with the short sale listing agent process with the short sale listing agent and short sale requirements with the lender.2.The seller prepares and submits the financial package required by the lender.p g q y3.The lender qualifies the seller and the property for a short sale.

4.The listing agent advises the seller and advertises the propertyadvertises the property.5.A buyer writes a short sale offer; the seller accepts the offerseller accepts the offer.6.The lender’s negotiator works out details of the final agreement, and the details of the final agreement, and the lender approves the short sale.7.The buyer closes on the property.y p p y

Although a short sale may occasionally be completed in as little as two weeks be completed in as little as two weeks, the process usually averages 3-4 months. Delays can be common: the seller submits an incomplete financial package; p p gthe lender is slow to reach a final agreement; the buyer backs out. A Short S l S i li t h l id Sale Specialist can help avoid some problems, but patience helps both the seller and buyer through the processseller and buyer through the process.

Can You Talk the Talk?Understanding some common terms is Understanding some common terms is important in any short sale conversation.

BorrowerTypically the homeowner although often Typically, the homeowner although often a parent or other family member. Realtors often refer to borrowers as Realtors often refer to borrowers as sellers.

DeficiencyThe difference between the total amount The difference between the total amount due and the amount applied to the note. Deficiency is a term that varies state to Deficiency is a term that varies state to state. Although it’s not always avoidable, you don’t want to get stuck with a y gdeficiency between what you owe and what has been paid.

LenderThe entity that holds the paper or lien on The entity that holds the paper or lien on your property. The lender can be a single entity or a trust for example Although entity or a trust, for example. Although it’s not entirely accurate, the bank where mortgage payments are made is often g g p yreferred to as the lender.

Negative EquityThe property has no equity; that is debt The property has no equity; that is, debt on the loan exceeds property value.Release of LienRelease of LienThe lender who releases the lien and allows the sale to go through retains the allows the sale to go through retains the right to pursue the deficiency amount. The rights of lenders to pursue the g pdeficiency vary state to state.

Satisfaction of DebtThe lender who accepts the amount paid The lender who accepts the amount paid as payment in full will not pursue you for the deficiencythe deficiency.ServicerAlthough comparable to a property Although comparable to a property manager, the “properties” that servicers manage are mortgages. Servicers are g g gdebt collectors for the amount that is owed.

Short SaleIn a short sale the lender accepts less In a short sale, the lender accepts less than the total amount due. Not all lenders will accept short sales and not lenders will accept short sales, and not all property owners or properties qualify for short sales.

What Do They Want From You?

Most lenders and servicers have developed a short sale package to be developed a short sale package to be used with their loans. The forms may vary, but they typically require the same vary, but they typically require the same information.Basically, the lender or servicer will y,require many of the same documents requested at the time of the original loan application.

Proof of Income If employed: the two most recent If employed: the two most recent paycheck stubsIf self employed: six months Profit & Loss If self employed: six months Profit & Loss StatementIf receiving retirement social security or If receiving retirement, social security, or unemployment: a copy of the entitlement letter

Monthly ExpensesList all expenses including mortgage List all expenses, including mortgage payments even if you are not currently making the paymentsmaking the payments.If your mortgage payment does not include real estate taxes and include real estate taxes and homeowners insurance, be sure to list them as separate monthly expenses. Divide the real estate tax by 12 to calculate your monthly contribution.

List the actual credit card payments you are making or the minimum payments are making or the minimum payments due if you are not currently making credit card payments.p y

Remember to list all expenses: day care, church dry cleaning insurance (life church, dry cleaning, insurance (life, health, auto), auto maintenance, gasoline, utilities, cell phone, cable, food, g , , p , , ,newspaper, etc. Check your bank statement or credit card statements to see where your money goes so you don’t forget anything.

Bank Statements Usually two recent bank statements are Usually two recent bank statements are required. Include all pages of the statement including the last page which statement including the last page, which is usually a reconciliation page. Bank statements help the lender get an idea of p gwhere your money goes.If you do not have a bank account, write out a simple statement to that effect; then sign and date the letter.

Hardship LetterWrite a simple letter explaining why you Write a simple letter explaining why you fell behind on payments and can no longer afford your house The most longer afford your house. The most common hardship is sustained or permanent loss of income.p

Your letter should include facts without excessive details excessive details.

Stick to two points: why you are behind in payments and the likelihood that you in payments, and the likelihood that you will not able to afford payments in the future.

Tax ReturnsMost lenders require the two most recent Most lenders require the two most recent tax returns, although the specific requirements vary Some lenders are requirements vary. Some lenders are satisfied with the first two pages of the return. Some insist that the tax return is signed. Others don’t require the tax return at all. Be sure to comply with your l d ’ i t Y Sh t S l lender’s requirements. Your Short Sale Specialist will guide you through your lender’s specific requirementslender s specific requirements.

Form 4506This form gives the lender the right to This form gives the lender the right to request your tax return. It is highly suggested that you do NOT It is highly suggested that you do NOT leave Section 9 blank. If Section 9 is not pre-filled, use data from 2009 and 2010 pre filled, use data from 2009 and 2010 or the two most recent years.

Other DocumentsThe following documents are typically The following documents are typically provided by your real estate agent:Listing agreementListing agreementMarketing historyComparable market analysis (CMA)Comparable market analysis (CMA)Agreement for purchase and saleP li i HUDPreliminary HUDBuyer’s proof of funds or pre-approval letterletter

Where Do You Start?

“OK, I need help. Where do I start?” Excellent question The first step Excellent question. The first step –selecting a real estate agent – can be daunting all by itself!daunting all by itself!

One of the best ways to find a good agent is to ask family friends or co-agent is to ask family, friends, or coworkers for referrals. You may be surprised to find out how You may be surprised to find out how many people you know who are or have been in the same boat. Stay away from y yreferences such as “My wife’s brother’s sister has a license” or “Uncle Joe does

l t t ” some real estate.”

You want to locate an experienced, full-time Short Sale Specialist time Short Sale Specialist.

This cannot be stressed enough. Not every agent has short sale experience every agent has short sale experience even though the agent may have years of real estate experience.p

Ask questions – a short sale specialist should have solid answersshould have solid answers.

Are you a full time Realtor or is real Are you a full-time Realtor, or is real estate a part-time job? This should be your first question – it is imperative to your first question it is imperative to hire a full-time agent.

How long have you been working with short sales? The longer the better The short sales? The longer, the better. The short sale area of real estate is constantly changing as banks and the y g ggovernment attempt to stabilize the housing crisis and standardize the short sale process. You need an agent with extensive experience keeping up with these ever changing laws and these ever-changing laws and regulations.

What percentage of your overall business is short sales? Short sales are labor-is short sales? Short sales are laborintensive. If your agent is not dedicated to the special needs of short sales, tasks p ,can easily remain undone because traditional real estate deals are easier to manage and might take precedence

Do you outsource the negotiations? If so, who pays the fee if the bank won’t? who pays the fee if the bank won t? Outsourced companies sometimes expect the buyer to pay a short sale service fee, y p y ,which is a real deterrent for buyers.

Finally, trust your gut. Select an agent with whom you feel comfortable with whom you feel comfortable.

You want someone who listens to you You want someone who listens to you and hears your concerns – someone who is willing to answer every question, no is willing to answer every question, no matter how trivial it may seem. The agent you can trust is the right agent for you.

Wendy Smith Real Estate offers a free, confidential consultation confidential consultation.

Please fill out the contact form at Please fill out the contact form at www.WendySmithShortSales.com

or call (727) 452-3301 to schedule an appointmentappointment.