If you missed my post from yesterday "Elkhart County, Indiana, Short Sale Homes-Everything You Need To Know-Part 1" you can go back and read it here. Today we are going to talk about the Hardship Package.
Once an offer is received on your property, your Short Sale Hardship Package must accompany the offer to your Mortgage Lender. You will delay the processing and possible loose the offer if you aren't fully prepared with all the necessary documents.
First you must have a conversation with your Mortgage Lender, some of them require a 10 minute credit overview process where you tell them your financial information and they determine that you do indeed qualify for a Short Sale. Now for the documents:
- You need to give your Real Estate Agent a Letter of Authorization which allows the Mortgage Lender to speak with them about your loan. The Real Estate Agent cannot change the amount you owe or the interest rate or the number of years on your loan, it just enables the Lender to speak with the Agent. It must clearly state your name, co-signer name, if applicable, address, social security number(s), loan numbers and that you authorize your agent to speak on your behalf.
- A Hardship Letter-a hand wriitten letter to your bank explaining what happened that got you behind in your Mortgage Payments. It does not need to be a book, but it does have to say that you cannot make your mortgage payments and you are asking them to consider offering you some help, such as a Short Sale.
- Pay Stubs for the previous two months of pay, whether it is from your employer or unemployment benefits. For as long as the house is on the market, you need to save and make copies of pay stubs so that when an offer comes in your Real Estate Agent will have the most current ones available.
- Bank Statements are also required for the previous two months, they also need to be copied every month until the offer is accepted by your Mortgage Lender. If the bank statement has 5 pages to it, all of them must be copied. If there are 10 pages, all must be copied.
- Income Tax Returns for two years along with all the supporting documents are needed by the Mortgage Lender to verify your previous employment and salary. This is one of the areas in which they are comparing what your loan application said and the amount claimed on your tax return.
- A Financial Statement-usually each lender has their own form to be filled out and your REALTOR(r) can get that off of their website. This is where you will list all your monthly payments for money you are obligated to pay and your income. This is the other area your Mortgage Lender will check to verify your income on your original application for your Mortgage Loan.
- A Listing Agreement, your REALTOR(r) will provide
Once an offer is received your REALTOR(r) must get the Home Owners acceptance of the offer, as they are still the legal owners, The bank does not own the home at this point, the owner can accept an offer from a buyer but since the offer is "short" of full payoff, there must be the wording under further conditions that says that the offer is subject to third party appfroval, the Mortgage Lender is that third party. I also put specific wording that says the home owner can reject the third party approval if they do not agree with what the bank is willing to settle for and then your Agent will add to the above package:
- Copies of an executed (signed) Purchase Offer and any/all counter offers
- An Earnest Money Check that will be deposited now
- A Pre-Qualification Letter from the Buyers Lender-this means the buyer has already submitted to their lender all the required documents and the lender has verified them to qualify you.
- A HUD1 Settlement Statement prepared by the Title Company
- A Comparative Market Analysis prepared by your Real Estate Agent
This is the beginning of the process.
When all these documents are compiled and faxed in, your Lender will have a department that physically scans each document and attaches them to your account. This is why your loan number must be on every page submitted. This scanning process can take up to a week if the Lender is large, due to the vast number of Short Sale requests. Your Agent should be in touch with your Mortgage Lender no less than once a week for an updated status.
Now for the promised explaination of the most common beliefs and whether there is any substance to them:
- Lenders are desperate and will accept a really low offer:
The Lender would rather work with the original Home Owner to modify the loan and make it affordable to them. Under President Obama's "Making Homes Affordable and Stability Program", most Lenders will receive actual money for every loan they modify, from good old Uncle Sam. Unreasonable offers are not usually accepted and your earnest money is tied up until the third party makes their decision. Mortgage Lenders are not obilgated to participate in this program, it is their company decision.
- Lenders are eager to work to get any kind of money in on a deliquent loan:
Mortgage Lenders send either one or two independant Real Estate Brokers out to the home to give their opinion on the value of the home, or they hire a Real Estate Appraiser to do a full blown appraisal. On both accounts there must be other homes that have sold in the price range you offered for the home and those homes must be comparable to the home you are offering on. The Lenders have strict policies on how much they can accept and so does Freddie Mac and Fannie Mae. If your offer isn't in those ranges, it does not get accepted. Sometimes they counter the offer and some times they reject it. It is important to the success of selling your home that you work with a REALTOR(r) that is not only familiar with this process but has had success in closing them.
- If there is something wrong with the house, the Lender will fix it:
Forget about this one. When you offer on a Short Sale Home the Lender will not fix anything and the REALTOR(r) for the Home Owner wil advise their client not to fix anything either, as they are loosing the home. Inspections that are requested by the Buyer are their financial responsability whether the offer is accepted or not, therefore, please do not order inspections prior to receiving the third party agreement. Even then, the inspection reports are to inform the purchaser of the condition of the home and the offer cannot be withdrawn despite what is found. Short Sale Homes are purchased in as-is condition.
- The Home Owner doesn't need to accept the offer:
All offers must be presented to the Home Owner and accepted by them prior to submission to the Lender. In the State of Indiana, the Home Owner is the owner of record until a foreclosure is fully processed. The natural end to a foreclosure is being sold at the Sheriff Sale on the last Wednesday of the month, in Elkhart County.
- The Lender will pay for everything, including seller assistance:
There are certain things that the Third Party will pay, some of these are:
- Unpaid property taxes
- Title Insurance
- Real Estate Commission to both Agents
- A Minimul Amount to 2nd and 3rd mortgages
- Seller's Assistance on a Good Offer-and only sometimes
Some that they will not pay are:
- Judgments against the home
- All of the Second and Third Mortgages
- Unpaid Home Owners Association Dues
- Mechanics Liens
Here are some suggestions from a Certified Short Sale Specialist, your local Elkhart Indiana Real Estate Expert Evelyn Johnston with Prudential One Realty:
- If you really like the home, make your offer as clean as possible, this means, don't make any demands that you absolutely must have, like sellers assistance, or a short time frame for the third party to respond in.
- Offer as much as you can, not only to beat out any competing offers but the less the bank looses on this home, the more likely you are of them approving your offer.
- Put down as much as seems reasonable to you. It indicates how serious you are about buying this home. Earnest money is fully refundable if the third party does not accept your offer or if they counter your offer and you don't want to accept the counter. In most cases, you and the home owner will sign a mutual release and the listing office should have your earnest money refund within a matter of a few days to your agent.
This is a partial list and in no way obligates the Mortgage Lender to even pay these.
Contact Evelyn Johnston with Prudential One Realty at 574-304-7148 if you are in the position of needing to sell your home as a Short Sale, or to answer your questions about your particular situation.