I've had the opportunity to work a couple of lengthy short sales in the last year. Realizing it is an evolving process and wanting to learn updates, I attended a brief short sales seminar this week and want to share my takeaways:
1. HAFA is a volunteer government program. ZERO banks volunteered to be in the program. The government may extend the deadline to volunteer and "persuade" banks to volunteer by taking away government incentives such as FDIC insurance.
2. Every loan has a "Pooling & Service Agreement" with their investor. This includes the terms of authority which indicates if the bank can delegate for the investor or not. It also states that it is the banks obligation to maximize recovery capital. That's why the banks don't take low ball offers.
3. Ask the bank what the terms of authority are and how is it working with the investor to get an idea of how long the short sale will take. You will most likely need to speak to a supervisor.
4. Fannie Mae and Freddie Mac take 90-120 days to close. WAMU 150 days.
5. The number one reason short sales fail is due to an incomplete hardship package. This website has a good checklist: mrseducation.com. The hardship letter should only be two paragraphs. The bank doesn't have time to read more than that. Paragraph one states the hardship; attach the supporting documentation. Paragraph two states the "intent to sell short", "expectation of a full settlement of debt" and "avoidance of bankruptcy".
6. The number two reason they fail is an improper prequalification of the borrower/seller. Washington is a single action state. The short sales approval by the first lien holder is the action and they cannot file a non-deficiency judgment. However the second lien holder is looking for 10% of it's debt owed. If the loan is for $100K and they get $3K from the first lien holder, they are looking for the seller to pay the other $7K.
7. No matter how big the file is, put the loan number on the top right corner of each page and the page number too. It will make it so much easier for the bank to receive a complete package. Also include a table of contents. The easier you make it for the bank, the easier it will be for you!
I hope these tips help during your next short sale transaction ... or one you are already working on!
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