Secret #1
Secret #1
Saving some "Ammo"
In order to begin negotiations with a lender, you need to gather information that will be
organized into a "short sale financial package." Lenders require certain documentation
so as to validate the seller's financial situation. It is critical that a homeowner/seller be
experiencing some sort of financial hardship, otherwise the lender will ignore your
package. For instance, if a seller of a property is in foreclosure, but they have $100,000
or even $10,000, in the bank, the lender will reply that "this person should be making the
mortgage payments and they are simply choosing not to make those payments" and
dismiss the case. We have seen this happen on several occasions when we thought we
had a shot of pushing a case through mitigation. The lender saw that the seller had
positive cash flow or cash in the bank or a 401k and was not experiencing true financial
hardship and foreclosed on the property.
NOTE: All lenders and servicing companies of loans require the same documents to
process a short sale offer.
Here is a list of documents required in the Short Sale Financial Package:
Authorization to release loan information
P&S agreement with offer price
HUD 1 with offer price that matches P&S agreement
Hardship Letter
Financial Statement (Budget Form)
2 years tax returns - most recent
2 months bank statements - most recent
2 pay stubs - most recent
When submitting the Short Sale Financial Package send to the lender ONLY what they
require, keeping any remaining information as "AMMO" to be used at a later time for
various strategic reasons. Lenders will usually order an interior BPO with just the basic
information they requested. Any additional information gathered can be used to do the
following: as textual support for the offer while conducting a BPO appointment with the
agent, to request an additional BPO be ordered if the first comes in high, and to validate
your offer after the BPO with the loss mitigator to get a short sale approved. If
information is given too early, you may be wasting your best chance to support validate
your offer if an issue arises. In other words, you'll have nothing left over to argue your
case for final short sale approval should you need to.
After the BPO has been completed and you are negotiating the final purchase price with
the lender, start "firing away" with the "ammo" you have saved up. What I mean is now
that you are negotiating the final offer price send all these documents named below to
support your offer. This will help make a case for why the lender should accept your
offer.
Here are some items to "keep in your back pocket":
1) Repair Estimate- This is important to the short sale process because the lender
usually has no idea of the repairs that are needed inside the property. Oftentimes,
the lender will have ordered a drive-by exterior appraisal. This appraisal is based
on comparable sales alone. Any needed repairs are typically overlooked. This is
why having a repair estimate to submit to the lender and the BPO agent is
valuable. The lender and the BPO agent need to understand that the offer is based
on AS-IS condition and that the repairs are necessary to get the property ready for
retail. If the BPO comes in high, even though you gave the repairs to the BPO
agent, you can send them to the lender. This extra "ammo" will allow you to
make a case for why the BPO came in high. If the BPO agent doesn't note the
repairs in their report, which occurs often, you can tell the loss mitigator that the
BPO came in high because the agent didn't note all the repairs.
2) Current Market Analysis (CMA) - This is a report, typically generated by a
licensed real estate agent that accurately depicts the value of a property. The
report has four main sections. The first is a collection of comparables based on
sold properties. The second is a collection of comparables based on properties on
the market. The third is a collection of pending comparables. Last, this report
includes a list of repairs needed. This analysis is similar to an interior BPO. The
CMA should be withheld from the original offer and short sale package
submission so the buyer/investor has some additional ammunition to give the loss
mitigator for final negotiations. The CMA can also be used to argue against a
grossly inflated interior BPO that was submitted to the bank.
Comparable Sales that sold in the area near the subject property help determine
the value of that property. Find the comparables that are near your offer price.
You will want to give these comps to the BPO agent. These comps reaffirm/
validate your offer price.
Several comparable software tools are available to help you. Some examples are
Haines (www.haines.com), RealQuest, Zillow (www.zillow.com), and the MLS
in your area
3) Days on Market - If a lender repossesses a property as an REO the last thing they
want to do is sit on it. They list it with a realtor to sell and hopefully it sells
quickly. Create a "days on market" report or have your real estate agent. This
report will show the lender just how long they will sit on the subject property if
the repossess it. This is a major negotiating tactic: tell the lender that based on the
"Days on Market" report that if the property is taken back, the lender will be
sitting on it for "X" amount of days. Do they really want to sit on an REO that
long?
4) Pictures- Grab your digital camera and take pictures of the damage in the house.
Submit these to the lender to show the repairs that are needed. These pictures will
help to get a BPO ordered. Do not get right up onto the damaged area. Take the
pictures from 10 feet away so that the picture shows the entire surrounding area.
Make sure the photos are digital so that they can be emailed to the loss mitigator.
Take as many photos as possible- but don't overdue it.
Many times lenders will balk at ordering an interior appraisal/ BPO because of
their exterior BPO. Having interior photos of the damaged areas will help the
lender see the repairs needed, and can advance a file forward. The lender will see
the damage that's been done and order a new interior BPO to get a true as-is
value. When you submit the short sale package you will want to withhold the
pictures. The reason? . . . many BPO agents/ appraisers do not do a complete job
of assessing repairs. If the interior BPO comes in high, send/email the pictures to
the loss mitigator to get the BPO adjusted or another interior BPO ordered.
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