The Banks Role In Determining The Path To A Short Sale

By
Real Estate Agent with Benchmark Realty TN 288457

What do banks look for when they review the information on a loss mitigation request? (Step 1 in a short sale)

Most banks require the owner to provide 2 years of tax returns, two current months of bank statements and 2 recent pay stubs along with a complete financial statement and a hardship letter just to start with. They have their departments also reverify employment or unemployment dates. All of that is then compared to the time frame of the slow or non payment records. If all of these things match up and there is verification of a life changing event then in the majority of the cases a Lender will begin discussing with the owner a work out that may include a short sale. If there is for any reason a signal that the income loss is temporary then a loan modification or forbearance is the Lenders first choice.

After all of this is completed the banks then want to have an idea of the true market value of a house and will order a drive by BPO to see what the fair market value of the property should be if the house is for sale. From there they will make a decision on the costs they, the bank, must incurr to sell the house, weigh the likelihood of the home owner to repay the modified loan or should they just cut bait and sell at a loss.

Now as the agent who is helping the owner through this process know this...banks want to rework the loan first but they also know that 80% of loan modifications or forbearance work outs fail within the the first 24 months. This in many cases will make a short sale a viable option to the lender.

 

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Rainmaker
362,407
Lynn Pineda
eXp Realty - Boca Raton, FL
Real Estate Promises delivered in SE Florida
Well put information that is critical in knowing what makes a bank click - thanks Paul.
Aug 11, 2007 07:59 AM #1
Rainmaker
343,510
Arina Hanciulescu
RealtyPros - Las Vegas, NV
RealtyPros
The Short Sale is quite confusing process and some times frustrating. It is good to read posts like this to get a clearer picture... Thanks
Aug 14, 2007 07:36 AM #2
Ambassador
2,135,266
Respect Realty LLC
Respect Realty LLC - Milwaukie, OR
Brokers - Oregon / SW Washington Real Estate

I work a lot of short sales and this advice is so true, I do my best to get the bank to work out something with the owner to keep the home. But, I do know that down the line if things haven't changed they will be calling me again with in two years.

Aug 14, 2007 05:08 PM #3
Rainer
68,094
Leigh Bates
Atlantic & Pacific Real Estate - Flower Mound, TX
The Trinity Group
Paul - I just subscribed to your blog - I am really enjoying all the insight. But, I am in the process of working 2 short sales right now with 2 separate banks, both eliminating the verification of income requirement. I thought it was odd - goes against everything I've been taught, but wondering if anyone else has come across the same thing?
Aug 14, 2007 05:10 PM #4
Rainer
78,168
David Slavin
Keller Williams Premier - Katy, TX
CDPE, ABR, SRES Keller Williams Premier
Thanks for the information!  Very informative!  I appreciate you sharing your knowledge in this area.  What would you recommend to do to learn how to do a BPO that will get accepted?
Aug 24, 2007 06:17 AM #5
Anonymous
John Marker

Paul,

We were able to close a short sale and the bank accepted my CMA for value which is a good thing.

 

 

Sep 15, 2007 03:18 PM #6
Rainmaker
291,279
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing
I'm hearing that banks don't understand or cooperate with the short sale concept.  Is this true.  Given the publicity of the current market, I find that hard to believe?
Sep 15, 2007 05:39 PM #7
Rainer
33,698
David Petrovich
S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ

"I'm hearing that banks don't understand or cooperate with the short sale concept."   

I've been doing shorts regularly for more than 20 years.  They became a mainstream workout option in the early 90's. Loan servicer know about short sales... however a loss mit rep working on a portfolio of nonperforming loans which do not permit a short sale option may be unfamiliar with the concept.

Not every upside down situation indicates short sale. Lenders/loan servicers and their workout critera can differ from lender to lender, loan type to loan type, position, etc.

At risk junior mortgagees are more likely to expedite the shortsale process, while isolating a senior mortgage may be more difficult.

 

 

Sep 16, 2007 01:25 AM #8
Rainmaker
125,021
Blair Ballin
Conway Real Estate - Phoenix, AZ
Paul, great info--thanks. I am trying to arrange a short sale now. Seller owes roughly 215 on a 120k or so 1st, 90k or so 2nd, and trying to cut that 2nd in half or a little better to get him out of no payments in 3 months and avoiding foreclosure. Wish me luck.
Sep 16, 2007 02:53 AM #9
Ambassador
566,489
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team
Great information.  One of the first to lay it out so smoothly about how the lenders look at it from their standpoint.  Thanks. Keep informing us.
Sep 16, 2007 08:27 AM #10
Rainer
34,223
Marie Kletke
iNet Realty - Long Beach, CA
Broker - Long Beach Real Estate
Thank You for making it simple to understand the lender's point of view in a short sale situation.
Sep 16, 2007 09:14 AM #11
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Paul Moye

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