June 22, 2024

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Transforming Houses Into Homes

6 Things To Remember When Going Through A Short Sale Process

1. The client financial worksheet

The client financial worksheet normally can be a generic type sheet like the one included in the appendix or occasionally the lender has their own specific form. ASC which is the loan servicer for Wells Fargo is one of these.

The financial worksheet gives the lender some idea of the clients financial situation. If the worksheet shows that if they tightened up their budget a notch, the owner actually could afford the house, then the lender may offer a loan modification. If the worksheet shows the owner cannot afford the house, the lender will go ahead and (99.9{7fcbeda410c9f02a886f83a59a5af911565ec7141a170d397df667872a958d9e} of the time) do a short sale. If the owner can probably head for foreclosure if the owner refuses a loan mod. This is to take back the property, file the deficiency judgment, and come after the homeowner for the difference. The financial statement is very important to the process and the numbers for expenses (groceries, utilities, cable, water, autos, gas, etc.) should be in within reason. A lender will not check the statements of expenses with a private investigator but if the expenses seem unreasonably high, the lender will assume the homeowner is being deceitful and may deny the short sale on those grounds. The bottom line is that the outgo must exceed the income by a significant amount. This is an amount that no reasonable budget restrictions can overcome.

2. The Authorization Letter

The authorization letter should include the sellers’ full name, address of the property, loan number, last four digits of the social security numbers, full names printed and signed, and the people that the authorization is for. This should include yourself, the name of the closing agent at the title company that you will have open title on the property, and anyone that is going to be calling the lender to work the short sale. For example, an assistant or if you’re in an office that has a “calling short sale lender person,” or if you decide to farm out (outsource) the calling the lenders process, you would need the name of that person or organization. You also should have the name of the real estate company you’re working for with your cell, fax, and regular office phone numbers as well as email address.

After the authorization is faxed, you can work on getting a complete short sale package put together while you’re waiting for an offer to come in on the property. Some people will tell you that the order of the pages is important but I think this is only true concerning a document like a purchase offer. It is multiple pages and you really should take the trouble to make sure page 2 follows page 1 and so on.

3. The Hardship Letter

Another key factor that, strangely enough, is given a lot of weight by some lenders and is not even considered by others is the Hardship Letter. This is an explanation of hardship that is normally handwritten, signed, and dated. The letter basically gives a reason or excuse to the lender on exactly why they are late or totally unable to make their payments. “My house isn’t worth what I paid for it” is not a valid excuse. Reasonable and valid excuses are something along the lines of, divorce, death, disaster, disease, destruction, and the main one lately is de-employment. (loss of job)

The exception to the handwritten part is when the owner’s handwritten part is when the owner’s handwriting is totally ineligible or read with great difficulty, and illiteracy. In both cases, I normally type out what the homeowner says is the reason for the hardship, let them read it or I read it back to them, and then have it signed and dated. The hardship letter must ALWAYS be signed and dated no matter what form it’s written in.

4. Two Most Recent Monthly Bank Statements

The 2 most recent months’ checking account is next on the list of documents needed for the complete short sale package. This gives the lender an idea of how much money is coming in and how much is going out and what the money is going for and how much is accumulating. (if any) Just as they wanted corroboration of the client financial sheet.

5. Two Most Recent Pay Stubs

When you give copies to the lender of your 2 most recent pay stubs, this is reinforcement again of the client financial statement. Take home monthly income is stated on the financial sheet and it needs to match up pretty closely with the pay stubs. Some homeowners are receiving unemployment income. Even though this is temporary, the lender still wants that income counted. With a regular paycheck that is direct deposited, the employer also sends a paper trail to the employee stating how much money was deposited and where it went. It is fine to include these statements in lieu of actual pay stubs. If the unemployed have direct deposit they are not sent a paper trail and have no proof of how much income is directly. Indirectly, if the homeowner will circle the direct deposit amounts on the 2 months bank statements with a notation about what it is, that is acceptable.

6. Last Two Years Tax Returns

Now for the final back up documentation of the client financial form, the lender wants the last 2 years tax returns from the homeowner. Just one year back is sufficient most of the time depending on what time of the year it is. For documentation of documentation of documentation they also ask that the W-2′s for the homeowner / employee be included. The good news is that they really are only interested in the top 3 pages of the tax return so you don’t have to send the entire return.

In the case of the self – employed, the lender sometimes wants to see a profit and loss statement for at least the past fiscal year and sometimes likes to see the quarterly tax contributions. As an independent contractor, we Realtors walk a fine line between employee and independent business. The tax return and sometimes the lender will tell you if they need additional information.