This is the make or break of your short sale proposal.
You must set the stage to show the bank why it is in their best interest to take a discount now rather than later. Prove how they will make more money by releasing the lien now rather than going through a costly foreclosure and terrible resell market.
Must-have items in a short sale package include:
- Hardship Letter
- 2 Months of Bank Statements
- 2 Months of paystubs
- 2 Years of W2s
- Listing Agreement
- Purchase Agreement
- Comparable Market Analysis
- Estimated HUD1
- Authorization to Release Information
- Repair Estimates
- Pictures Supporting Repairs
Most lenders will want to see that the homeowner has had financial hardship. They want to see that the homeowner cannot make payments and will not be able to catch back payments up.
The letter should be written by the homeowners themselves. Simply ask them to describe on paper what happened and what their current situation is. I had one homeowner who actually wrote a 10-page hardship letter describing everything in detail.
The more details the better for your short sale proposal.
W2s, Bank Statements, and Pay Stubs
Include all financial supporting evidence to back up the hardship letter. Include the last 2 months of bank statements and pay stubs if they are working. If they are not working then type up a letter stating that no pay stubs are included because they are unemployed.
Banks like to see that the property was properly marketed for sale by a real estate agent. They want to see that the home owner did everything possible to sell the house before asking for a discount.
The lenders will normally want to see a valid offer to purchase before going through the decision of discounting. This includes any addenda to the contract.
Comparable Market Analysis
Foreclosing lenders will have a Broker’s Price Opinion done by a real estate agent within the area.
To lower the perceived value of the property, you will also want to submit your own market analysis using lower priced comps sold within 6 months or less. The whole idea behind the short sale proposal is to reduce the perceived value of the property.
Showing the average “days on market” will help your proposal a lot. The lender needs to get rid of their foreclosure inventory as fast as possible. In some areas, houses are not selling for over a year and that is a great incentive to discount.
List of Repairs and Pictures
To continue to lower the perceived value of the property, list all repairs needed, the costs to make those repairs and pictures showing the repairs. This will show the loss mitigation representative that the house would need repairs to bring a full value.
The bank wants to know what they will net after all closing costs and discounts are done. This is the bottom line figure that they will decide whether or how much of a discount to proceed with.
Normally you would use a HUD 1 sheet to display all transaction fees. The owner must not be shown as receiving any money. If the lender sees the homeowner receiving money, your short sale request will be killed instantly.
Authorization to Release Information
This should be the first form you fax to the loss mitigation representative. They will not be able to talk to you regarding the loan specifications without it. The property owner will sign this form giving the bank permission to speak to you regarding the loan information.