What is a Short Sale? When a bank or investor accepts less money than what is owed to them as payment in full. Be aware that the I.R.S considers debt forgiveness in general as income. Therefore, the difference between what is owed and what is paid, the deficiency, can be reported as income to the homeowner and they may be required to pay taxes on those monies. Not all lenders report this income so when working with the homeowner of a Short Sale you will want them to be aware of this.
In today's market we are seeing and hearing more and more about Short Sales. Increasing payments on Adjustable Rate Mortgages, job loss, death, divorce, and a decrease in property values are just a few reasons for the sudden influx of short sale transactions. Unfortunately not everyone understands the process and thus have suffered through long phone calls with the bank and a plethora of faxes leading to a headache or even a denial of the short sale. This does not have to be the case. Having a list from the lender of the specific items they require will save a lot of time. So if you choose to help these clients with their unfortunate circumstance, doing your homework far in advance will increase the confidence of your client.
A Short Sale, although it sounds like it could happen quickly, on average takes anywhere from six to twelve weeks to process once there is an accepted contract. Many short sales can be processed in less time depending on the lender and how quickly you get them the information they require. Constant follow up and copious notes will be key factors in making a short sale successful.
Starting the process of a short sale is no picnic. First and foremost get a letter of authorization from the homeowner giving you permission to talk to the parties invovled about their loan. This letter should include: the homeowner's name and property address; the loan reference number(s); and the Agent's or parties to be authorized name(s) and contact information. It must be signed by and dated by all homeowner's whose names appear on the loan. If you are dealing with a death of an owner, fax a copy of the death certificate with the letter of authorization. The next step is to get a copy of the latest mortgage statement(s) from the homeowner, call the lender and request the fax number to send in an authorization on their account. You will need to wait three days and call the lender back to make sure you are authorized on the account. Be patient, you may need to tell the person you already sent in your authorization and when you did so. If they are unable to locate your authorization ask them to verify the fax number and fax it again. Once you have confirmed the lender has your authorization, request to be transferred to the Loss Mitigation Department. The lender may have a different name for this department it could be the Foreclosure Department, Short Sale Department, or the Workout Department. This will be your biggest challenge with the lender... getting in touch with the right person. After finally reaching the right person, let them know you are working with the homeowner who would like to do a short sale and ask if they have a short sale package that they could fax to you. This package will give you the specifics on what they will want in order to approve the short sale.
In my next blog on short sales I will talk about determining if your Seller is a candidate for a short sale and how to approach them. Also I will cover the information all lenders will require to approve a short sale. Until then please contact me if you have any questions or would like additional information.