What information will the bank need to decide whether to accept a short sale?

[Maurice Bedard]

A short sale MUST be accepted by your current lender or servicer in order to proceed with the sale of your home. It is considered a privilege and not a right. So, with that said, one must be prepared to provide proof and evidence that they qualify and deserve a short sale by their lender.

Getting a lender to approve a short sale is primarily a question of economics. You have to provide hard numbers to show that the amount of money a bank will realize on the short sale is better than the amount it may recoup from foreclosing on the property and selling the property.

Your submission package should include:

1. Hardship Letter - explaining the circumstances that make it impossible for them to pay the full amount of the loan. The seller needs to be able to show true financial hardship. Someone with the assets or the income to pay is unlikely to be considered

2. Proof of employment or unemployment - W-2 forms from employers (or a letter explaining the seller is unemployed).

3. Proof of income - bank statements, two years of tax returns, and other financial documents outlining income and debt obligations. Most lenders will ask if you have an access to a retirement fund, investment fund, 401's, stocks, and how much is accessible and why if these funds are not accessible has to be provided in a written statement.

4. Comparative Market Analysis or CMA Broker Price Opinion or BPO (Mini appraisal) The bank will need comps or a broker’s price opinion showing the current estimated of value of your home. Be very thorough with your Analysis with Closed and then Active listings. Closed comparable are of course what they are looking for above all, but if you cannot find any sold in the last 3 months in the exact same complex or street/block due to the sluggish market, be very detailed with your analysis and calculate by square footage, age, size, views, frontage and upgrades, amenities et...

5. Listing Agreement or Proof of Listing - The Listing Agreement is a Short Sale: any offer is Contingent Upon the Lender’s Buyer’s Approval. The Listing has to be signed and sealed and promoted on the MLS prior to sending your package for short sale consideration to the Loss Mitigation Specialist. Often the commission will have a maximum stated by the Lender/Investor.

Tip: In preparing the package, be careful about discrepancies between the seller’s income and the income used to obtain the loan. A big gap may indicate mortgage fraud, unless employment circumstances have drastically changed

Other Items you want to include in your short sale package.

Cover Letter
Authorization to Release Information
2 months bank statements
Supporting Hardship Info – HOA liens, medical/disability statements etc.
Repair Estimate for the property
Contract
Net Sheet
First mortgage holder may ask for a payoff amount from the 2nd
Second mortgage holder may ask for a payoff amount from the 1st
Lender may ask for an Initial Title Report
FHA and VA may have their own forms and special requirements as well

Research links:
From Realtor.org, Real Estate Blog - Running for a Typical Short Sale Package,

[csb2008]

May I please ask a question regarding a short sale? if you are lucky enough to make it through the above mind field and come out not owing your life! can you please advise as to what is reported to the credit companies? Is there life after a short sale as far as home purshases in the future? Or is the report as negative as a foreclosure?
Thank you so much!
Cindy
My Broker has shared with me the mind fields, but not once mentioned I may be held responsible for any amounts when over?

[12345]

i was in the modification process (black hole) but found out this week i had to take a 50% wage cut and was recently informed that my job could be finished as soon as dec 1. i have first with litton and second with ASC. i found a realtor who said he'd help me with a short sale. i won;t be making the payments since a months worth of paychecks will not cover the mortgage payements.. is a short sale possible or will they foreclose?

[Maurice Bedard]

did you call Litton and ask if they will accept a short sale.........

You would need to call Litton and ask what options the investor on the loan has............

Executive Resolution Team
Direct: 1-713-218-4592
Fax: 1-713-966-8852
__________________

[12345]

the realtor said he will do that for me. he says he is well versed and i don;t have to do it. he says he will match me up with a buyer... that is what he does, i meet with him a 3pm. i guess my question was does it change the possibility of the short sale since i won't be paying? but what you are saying is that its up to litton and probably asc...

[CHACHO]

So, the bank can take away your 401K?

[meljane]

Can anyone provide a phone number to Wells Fargo to investigate what they may need for a short sale?

[Maurice Bedard]

Wells Fargo
Loss Mitigation
1-877-216-8448

[meljane]

Thank you! I will let you know how it goes.

[Janeen]

Usually a lender will start with an appraisal to find out the current market value and determine a list price. Then a realtor will begin to get offers & submit them to the lender. The lender will decide if they are willing to accept the offer or not.

[JackDinLBC]

Moe,

You had mentioned with the submission package:

Tip: In preparing the package, be careful about discrepancies between the seller’s income and the income used to obtain the loan. A big gap may indicate mortgage fraud, unless employment circumstances have drastically changed

That's something I hadn't thought of. I don't think I even have copy of the application, if there even was one. Everything was done over the phone with the mortgage broker. It was a no doc loan. I know now it's a loan I never should have been in. Could the current mortgage holder come after me for fraud???

I had talked to two separate lawyers about doing a forensic audit of my loan documents. There are several suspicious things about the whole deal. Both wanted a $4-5k retainer to get things started. I don't have that kinda money to spend without knowing the outcome.

The house has no other value to me. There's no reason for me to fight this, so I've gone the short sale route. (see my other post in this forum) I've had a buyer since November. All the paper work has gone into GMAC. Since then I have been told they're waiting on the second, Homecomings, to accept.

[theylive]

I have been late two months now and I am in the process of getting "approved" for a short sale through CW. I told them that I was not going to pay the mortgage during the listing period and they told me that was fine. Will they still send a NOD letter and foreclose on me even if I am trying to work a short sale? In other words, does this by me more time not paying the mortgage? I hope I'm making sense.

[12345]

in my experience it doesn't automatically buy you time. that is up to the bank.. maybe now CW will work you a bit.. I think you are also way ahead of the game... not waiting till the end to try a short sale. Stay on those people... be careful, the people who worked with my on a short sale, only waited until i got my foreclosure papers, then they wanted the title so i could avoid foreclosure.. well according to my att SCAM.. then i woudl have become thier renter...

[miked2023]

I'm with CW, and our income is down significantly (about 33%) but we could still technically afford the house by their standards I'm sure (if we want to be broke for the next ten years). We just went 30 days late and don't plan on making any more payments. Is there a chance they will approve our short-sale? The house is inderwater around 100K.

[Maurice Bedard]

CW requires you to have the property on the market for at least 90 days before they will consider a short sale...............if there is multiple liens on the property it makes it a bit more difficult...........

You would need to ask CW if short sale is an option.

[CMA1969]

As of next month, I will not be paying. i have tried for 8 months to get CW, now BofA to work with me. Told by a friend's Uncle who works in the restructure/mod dept after looking at my loan (80/20), he doesnt see BofA ever working with me. I have decided to just walk away but, as a last ditch effort, am meeting with an agent next week who specializes in short sales. What has been the success of people getting a short sale approved with a 30 year ARM, value down 85K, not delinquent? Any input on this situation would be GREATLY appreciated. Thank you much!

[babbles]

I don't understand?? I have 3 liens attached to my home and request for short sale. EMC potentially says you have to be delinquent on payments while my other 2 lenders NFCU & USAA want to see the ability to repay the deficiencies as clearly listed in their requirements. How do I walk this tight line? I am current on all loans but my hardship is I haven't worked in over a year and a half because of my medical hardship and my property is over 100k underwater. If I started being late on payments, I miss the requirements for the 2 & 3rd lenders and since I am current I meet their requirements but I potentially miss EMC's criteria? I am on disability is how I am scratching to get by.

[jamesmclem]

Here are the latest forms for the HAFA Program as of 2/01/2011 will change with out notice.

HAFA Program - Get Your Questions Answered - HAFA Program Forms, Guidelines and Rules

[aileenharmat]

When an owner applies for a short sale, they have to fill out a hardship package, which describes the reason why they can't continue owning the house due to some hardship. A hardship can be a death in the family, divorce, loss of a job, etc. And, "I owe more than the house is worth" is not a hardship.

They also have to submit a list of all assets and debts. The bank then uses this to determine if they really should grant the short sale or if the owner should liquidate some other assets to make their payments. Or, maybe they will approve it, if the seller liquidates some other assets and kicks cash into escrow as a condition for the approval.

[Pattonator]

Silly question. What does the hardship really have to do with whether or not a bank will accept a short sale? I now that is the case but why? Why wouldn't they focus on what benefits them the most?

I just ran into this with my mortgage. I have a first which is owned by a Morgan Stanley Loan Trust and we negotiated a short sale. There is no current foreclosure action on the property but the home has been vacant for 11 months. I just want to get it out of my name already and start over with a new purchase as soon as I can and the least damage to my ability to do so was going to be a short sale.

The home has $405k between first and second mortgages. The first is at $323k and the second agreed to a settlement of $4k on their $82k in principle. The short sale would have been for $270k. The home in perfect condition in a private sale might net $325k but has roof damage and major mold/flooding issues in basement. My realtor estimated that at foreclosure the home wouldn't sell for more than $230k and as they haven't started foreclosure action it would take them at least 1 year. I haven't made a payment since September 2010. I had a bankruptcy in 2009 and the mortgage was included so my financial responsibility is $0.

It seemed the deal was all worked out and at the last minute Morgan Stanley came back and said that I don't meet their requirements for a hardship and therefore they will not consider a short sale or deed in lieu. The only options for me would me to pay off the loan or let it foreclose.

Again I am confused as to why they wouldn't look out to mitigate their loss rather than focus on whether or not someone who has no financial liability has a hardship. An investment company has a fiduciary responsibility to their shareholders to maximize value and they are not doing this.

As the home is vacant there only stands to be more issues with the home with flooding and mold and value will only go down. Plus they have the expense of court costs with a foreclosure and it will take some time. A short sale would have paid them more and done so this month. They may get an insurance payment from a bankruptcy but I'm not sure.

Thoughts?