PART 2 Crunching the Numbers and Gathering Information:

This second section of the series describes the necessity of crunching numbers and gathering accurate information from the Seller in order to properly market the property and prepare for the short sale negotiation ----

WORKING WITH DEBTORS:

Many times people who are in debt lose track of all of the bills that they owe, many of which effect the proceeds of the sale of their property.  It is important that the Realtor is aware of the mortgages on the property, along with any other liens.  In addition to mortgages and liens that are on record at the registry of deeds, the Realtor should be aware that taxes and municipal services such as water and sewer, and in some cities and towns, gas and electric are charges against the real estate that may be seriously delinquent. 

Often times debtors are emotionally devastated over the prospect of losing their home.  Many times they do not even know how long they have until their property will be auctioned or what their debts are that effect the property.  They need someone to take control of the situation.  If you do not take control, you may find that you waste a great deal of effort and energy.

To make the point about wasting time, I would just like to relate a quick story: In July of 2007 I was working with a Buyer who was purchasing a two family in Springfield, Massachusetts. My client had signed contracts, paid for her inspections and an appraisal on the property and was in the midst of negotiations over some repair issues.  The Sellers were not budging on a couple of the issues and I was working with her to help reach some compromise as we extended the inspection dates on the contract.  My client happened to work at the water department in the City of Springfield and she was aware of adjustment issues that sometimes take place regarding municipal liens on properties.  In the midst of the negotiations over repairs she had checked the title and called to ask why a deed had recently been recorded.  As it turned out, the property had been sold at auction in May! The Sellers did not know that they no longer owned their home. Imagine your frustration if you had listed that property, shown that property how many times, finally got the property under contract, frantically trying to keep the deal alive during inspection negotiations, only to find that your Seller does not own the property!  How could this happen?  It is simple: Debtors lose control of their bills, they get depressed, they do not open their mail, they really need your help. . . .

Attached is an intake sheet showing what you as the Realtor can help gather in order to get a jump on what you will need to complete the short sale what you need to gather:

Short Sale Checklist


Authorization to release information (see attached)                    ________

Listing Agreement                                                                  ________

3-6 Comps (market analysis)                                                  ________

Copy of Contract                                                                    ________

Copy of last mortgage statements                                           ________

Any other mail from Lenders                                                   ________

Any mail from Land Court / Attorney for Lender                        ________

Copy of last tax bill                                                              ________

Copy of last water bill                                                           ________

Copy of deed showing owners                                                ________

Last 2 years’ tax returns                                                       ________

Last 2 pay stubs                                                                  ________

Last 2 Bank Statements                                                       ________

Hardship information / Statement (see attached)                    ________

Pictures of the property                                                       ________

List of repairs and / or inspection report                                ________

Estimates for repairs                                                          ________

Recent appraisals (if any)                                                  ________


WORKING WITH ATTORNEYS:

Work with the attorney early on (read  -  when you list the property)

Most real estate attorneys will take the time to go on line with you on the phone and run down the property to help you assess the value of the liens on the property other than the mortgages.  A real estate attorney will also assist in reviewing the current tax status of the property as well.  More importantly, a real estate attorney can begin to gather the required information for the short sale, beginning with a ”short sale package” from the lender.
Attached are a couple of short sale packages that we have recently received.  Note that they can be as brief as one page or they can be ten pages long!

The real estate attorney should also help with the purchase and sale agreement and answer any questions regarding special language that should be contained in a short sale purchase and sale agreement.  On occasion the usual language regarding Seller's representation must be changes as this is a short sale and there is an expectancy of a shortage of funds.  Many contracts contain provisions where Seller certifies that there are no expected short falls.  Attached is some language used in Massachusetts they you may want to use:

ADDENDUM TO PURCHASE AND SALE AGREEMENT

BUYER understands and agrees that the sale of the Premises is the subject of a “short sale” meaning that the SELLER has made a request to his lenders, to accept loan payoff amounts for each loan that is less than the amount due under the terms of each lender’s Note. 

BUYER further understands and agrees that SELLER’s performance under this Purchase and Sale Agreement is conditioned upon:

1.    Lender (s) approval of short sale
2.    that the amount of proceeds due SELLER or the amount of cash due from SELLER shown on Line 603 of a final HUD Settlement Statement at closing shall not exceed zero and 00/100 dollars ($0.00), meaning that SELLER shall neither take proceeds from the sale of the Premises nor be required to bring funds to closing to consummate the sale of the Premises to the BUYER; and

3.    SELLER shall not under any circumstances be obligated to pay real estate taxes, condominium fees, utilities or other expenses related to the maintenance of the premises prior to closing.

4.    BUYER understands and agrees that SELLER may extend performance under this Purchase and Sale Agreement until approval of the “short sale” is obtained from each lender.

5.    BUYER understands and agrees that SELLER may continue to accept so-called “back up” offers until SELLER receives written confirmation of BUYER’s unconditional purchase money mortgage loan approval.

6.    BUYER understands and agrees that if SELLER is informed that one or both of his mortgagees do not approve a “short sale” of the Premises, this Purchase and Sale Agreement shall be null and void, SELLER shall not be obligated to perform, and BUYER’s deposit shall be promptly returned to him in full. 

7.    BUYER understands and agrees that s/he shall diligently comply with lender’s requests for information needed to approve his or her purchase money mortgage loan application, and in the event that s/he is unable to obtain a mortgage loan commitment by the date set forth in Paragraph 13, or the extension of such date as mutually agreed by the BUYER and SELLER, BUYER shall not be entitled to the return of his deposit unless s/he provides SELLER with lender’s letter stating that: 1) BUYER complied with all of lender’s requests for information; 2) that the mortgage loan application was declined; 3) that the lender declined the BUYER’s applications for conditions beyond BUYER’s reasonable control; and 4) the conditions that BUYER was unable to meet.  BUYER understands and agrees that his/her failure to respond timely to lender, refusal to provide information to lender, or failure to pursue a commitment for a purchase money mortgage loan shall not entitle him/her to the return of his or her deposit.




__________________________________        ____________________________________
SELLER                                                BUYER




__________________________________        ____________________________________
SELLER                                                BUYER

Just a general note on the short sale package: what we are trying to do is to provide the most information possible to the lender that will convince the lender that our deal should be accepted.  This is where a complete package with additional repair and picture information helps to make the case for the short sale.  The short sale application usually requires the following:

· Authorization to Release Information (homeowner’s permission for the bank to speak to you)
· Purchase and Sale Agreement
· Hardship letter (showing why the homeowner can’t make the mortgage payments)
· Financial statement (showing the assets, liabilities, incomes & expenses) includes taxes, pay-stubs, bank statements
· Estimated HUD1 or Net sheet (showing the bank what they will get at the time of sale)

Stay Tuned For Section 3 where I will review the negotiations process in a short sale including the "battle of the broker's price opinion". . .