What is a short sale? It is a transaction where a mortgage company agrees to accept a payoff on a property that is less than the actual amount owed.
What are the typical components of a short sale package?
Authorization to Release Information – This document is signed by the homeowner and authorizes the investor/Realtor to speak with the mortgage company on behalf of the homeowner. It is the first document you need in order to get the process moving.
Hardship Letter – This is a letter composed by the homeowner that explains to the mortgage company the circumstances that have led to the missed mortgage payments. The homeowner needs to make it clear that there is no hope of curing the default and a short sale is the only option. It is best if this letter is hand written, but a typed letter is fine. The letter should be at least one page long and be emotionally moving
Hardship Proof – These are documents that support the hardship letter explanation. For instance; a repossession slip, a layoff pink slip, doctor bills, death certificate, divorce papers, bankruptcy papers, police report, etc…
Financial Statement – This is a one-page document that states the monthly income and expenses of the homeowner. This includes food, utilities, clothing, car, phone, etc…
Bank Statements – Most mortgage companies will require the last two months bank statements for both checking and savings. They are interested in verifying the deposits and withdrawals against the financial statement.
Pay Stubs – Most mortgage companies will require the last 2-3 pay stubs to verify income. If the homeowner is unemployed, include a single signed document stating such and that pay stubs do not exist.
Tax Returns – The last two years federal tax returns are always required. They do not need the entire tax return, just the first two pages. If tax returns were not filed, include a single signed document stating such.
List of Repairs – Let the mortgage company know what costs would be incurred to bring the property up to market value.
Listing Agreement – Mortgage companies always request a listing agreement; if you’re a real estate agent doing the short sale for the commission, this is no problem. However if you’re an investor, it would be better if the property wasn’t listed in order to maintain profit margins. You’ll need to convince the bank that a listing agreement is not needed since a purchase agreement is already in place you’ll be further ahead.
Purchase Agreement – Have the homeowner sign blank purchase agreements so you can negotiate quickly and resubmit new purchase agreements immediately. A signed blank agreement means you’ll only need to change the offer amount and date before resubmission.
Net Sheet – The Net Sheet itemizes all closing cost and provides a bottom line number the mortgage company would receive at closing. Mortgage companies will request a Net Sheet or HUD-1. Over 99% of the time a Net Sheet is easier to create will be accepted even if they demand a HUD-1. A HUD-1 will be provided just prior to closing and will be prepared by the Title Company or Real Estate Attorney.
These are the most typical documents in a short sale package, however there are others such as Economic Information, CMAs, Police Reports, Code Violations, etc… that can really help support your low offer. |
