A short sale is not a "Get out of Jail, FREE" card!

By
Real Estate Agent with Coldwell Banker Residential

SHORT SALES... the bane of our existence.  But like it or not, for the moment, they're here to stay, so better edumacate yourself.

They can be difficult, long, and still end up at the end of the day, not resulting in a transaction.  Frustrating, I know.  But the banks are becoming better and better and handling and understanding short sales.  They recognize, within reason, that a short sale is a better result for them, than a foreclosure, and they're trying.

So where does the failing in most short sales lie?  It often lies with the agents.  The listing agent doesn't understand what's necessary, and how to communicate with the bank, and the buyer's agent doesn't understand what they need to submit with the offer to "lubricate" the offer.

So.. this week, Andrea Seeley, an agent in our downtown Evanston Coldwell Banker office, gave us a very thorough explanation of what a short sale is, and isn't... and outlined a lot of the paperwork that's required, and how to handle it... so I'm very grateful to her and her team... she's a short-sale expert... and if you're looking for short-sale agent, I recommend her highly.

So, let's touch base on what a short sale is:
(please note that I conduct business in the state of Illinois, so what I'm quoting may not be applicable for your individual state.  Do the research, know what you're doing.... please.)

JUST BEING UNDERWATER doesn't automatically qualify you for a short sale.  Just because you owe more money than you can sell the place for isn't going to cause the bank to roll over and say "okay, we'll take the hit".  A short sale is NOT a "Get out of Jail, FREE" card.

Your bank is not going to approve a short sale, merely because you're underwater, you want a fresh start, or just because the property values in your neighbourhood have dropped significantly and you don't think it's "fair".

The bank is going to look for evidence of:

* Financial hardship     * Medical illness     * Relocation      * Divorce     * an increase in your mortgage payment (such as an ARM that has reset)     * Serving in the Military      * Being incarcerated      * an inheritance that you cannot afford

They need to know that the transaction is at Arm's Length.  What the heck does "Arm's Length" mean?  It means that you CANNOT short-sell your home, and have your mother, brother, father, business partner purchase it.  You and the buyer can not have any relationship, nor any side agreement that they'll let you rent the house.  Nuh-uh, not gonna happen.   If you violate those terms, that could become your "Go INTO Jail" card, 'cause it carries a 5-year Jail term, and $10,000 fine!

So, you've decided to list a short-sale.  What forms do you need to have your seller sign?  Start with your standard listing package. 
* Add to that an authorization that says all lien holders are allowed to communicate with you. 3rd party authorization.
* You want to include any short-sale addendum that your agency requires.
* the Mars Disclosure... (What's that?) the Mortgage Assistance Relief Services disclosure.  This is a disclosure that protects the seller and the agent.  Don't forget it.
* the Dodd-Frank Certificate... (huh?).. certifies that the seller hasn't been convicted of felony, theft, money laundering, tax evasion and more.
* 4506-T... the form that authorizes the bank to actually view your tax return.  It's so easy to fake a tax return these days.
* RASS form... (What'd you call me?) this is the Request Authorization for Short Sale.  Each bank may have their own... but this puts the bank on notice that you're planning on short-selling one of their loans... and you get their authorization to do so.

So... have I scared you off, yet? 
No?  Wait...

Let's say you've finally found a buyer and the seller has signed-off on the price (Remember... the SELLER approves the contract, but the LENDER approves the short-sale!   Now... here comes the tricky part.

Submitting the offer to the bank so that it'll actually come to fruition.

There's a lot to submit, to make sure that the offer is actually taken seriously.  And yes, some of this paperwork MIGHT be something you've already sent them... but it's fully possible that it's on someone else's desk... so send it ALL again... one package all in once place.

* A cover letter, spelling out who/what/where.
* the RASS form.
* 3rd party authorization form.
* A fully executed contract (make sure you haven't left anything out).  Along with copies of the earnest money checks.
* If it's a condo... a copy of the 22.1 disclosure.
* The buyer's preapproval form.  If you don't have this, don't bother with the submission... go back and get it!
* If they're paying cash, some sort of proof of funds.
* Dodd-Frank certificate
* 4506T form.
* 2 years tax returns of the seller.
* the Buyer's W-9... yes, really!
* a Preliminary HUD-1.  If you don't know how to get one of these, ask your local title representative.
* the Listing Agreement... (with no more than 6% commission on it... if you've agreed to more than 6%... even if that's 6% + a service fee of some kind... you've opened yourself up for the lender to comeback and negotiation your commission).
* Marketing History Report (yes, they like these... they want to see that you really tried).
* MLS comparables.... be honest.... they're going to check.
* A Hardship letter... written by your seller... the more detail the better... the more heartache your hear in the letter the better... but outline the financial hardship!  It must be written by the seller... preferably in their own handwriting.
* 6 months of the seller's paystubs
* 2 months of the seller's bank statements.
* A report on the property's condition, along with photos.

Whew!  There we go... I'm sure I've left something out... but if you follow those instructions, you'll be on your way to a successful short sale.  If all of this scares you... do everyone a favour and refer it out to someone who knows what they're doing. Andrea Seeley would be my first choice, and she can be reached at 847.864.2600, or on her cell at 773.593.6994.  Andrea, thanks for the valuable information.

 

Don't let anyone tell you that we don't earn our commission these days... yeesh!
- 8

Posted by

 ALAN MAY, Realtor®   
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 1710 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Hannah Williams 03/30/2012 07:23 AM
  2. Ron Cooks 03/30/2012 05:12 PM
  3. Sally K. & David L. Hanson 03/30/2012 07:15 PM
  4. Sheila Rasak 03/30/2012 11:42 PM
  5. Rachel Tipton 03/31/2012 12:45 AM
  6. Gene Riemenschneider 03/31/2012 01:36 PM
  7. Charita Cadenhead 04/04/2012 05:39 AM
Topic:
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Tags:
short sales are not short

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Rainmaker
809,895
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Alan:

Congrats on the -8.  Short sales are not worth my time.  I have enough clients who buy and sell homes that are not short sales.  One short sale I participated in we were 2 weeks from closing and the bank foreclosed.  No one was happy about that.  Ever since, I have resisted the urge to be involved in short sales.

Mar 31, 2012 12:46 PM #71
Rainmaker
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Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

This is a great post, one of the better ones I have seen on the topic.  Thanks for the post.  I just realized this sounds like one of those generic responses.  So your comparing Short Sales to a Monoply Game and what has to happen is really creative.

Mar 31, 2012 12:55 PM #72
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Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams Fox Cities - Stevens Point, WI
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Thank you Alan, just the article I was looking for to summarize if not simplify the shortsale process, now to see how to get it done in our state.

Mar 31, 2012 02:07 PM #73
Rainmaker
1,079,273
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Alan, I have a headache from reading your post and all these comments and think I need to take one of your big red and yellow pills - if I take it, can you make another one?

Seriously, an excellent overview of the process - and yes, I am asked FREQUENTLY what a short sale really is. If people don't even know what they are, how can we expect them to work through one without the help of someone like Alan May?

Sharon

Mar 31, 2012 02:23 PM #74
Rainer
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Peter Michelbach
International, IT
i Sell Real Estate

Alan,

brilliant information ~ and great pointers for a thorough process. Bookmarked it! Thanks for sharing.

Mar 31, 2012 10:01 PM #75
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Tim - awwoooooooo!

Elisa - I do what I can.

Nancy - you can't afford to ignore those banks with impunity.

Bill - interesting... Active Rain blog reading should be mandatory??  Bob, are you listening?

LaNita - there are a great many misconceptions about short-sales.

Kim & Kristine - I'll attempt to resist.

Chris - that's been my experience, as well.  I think part of it is that they've added a lot of staff to handle short sales.

John - you tell 'im!

Tracy - a 100 pound gorilla is a small gorilla.  More like the 800 pound gorilla in the room.

Debb - not sure what my comment to Cara saying I hadn't even dealt with that triggered for you.. but hey, that's great.

Jack - and yet function entirely differently.

Eveyln - you're very fortunate.

Gene - LOL... I see enough comments from you, that I would have known it wasn't a drive-by comment.

Bob - happy to have been at the right place at the right time, for you.

Sharon - I'll have another one ready in the morning.

Peter - why thank you, sir.

Mar 31, 2012 11:23 PM #76
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Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Oops. not Cara - # 45.

Apr 01, 2012 03:19 AM #77
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Debb - sheila #45 is having an issue, and can't figure out how to reduce her photo.

Apr 01, 2012 04:04 AM #78
Rainer
36,540
Ken Anderson
Apex Results Realty Inc., Brokerage - Burlington, ON
Broker in Burlington, Ontario

We don't do short sales up here, but I'm so glad to be enlightened as I am headed south shortly to possibly do some investing and this is so helpful. Thanks, Alan, always enjoy your posts.

Incidently, I liked Sheila's pic.  I liked the dog, too.  Not a contest is it?  Sheila wins, hands down.  (not a Best Dog In Show Award - hope that's not what you were implying, Tim).

Apr 01, 2012 04:56 AM #79
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Alan May
Coldwell Banker Residential - Evanston, IL
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Ken - you may still get 'em.

Apr 01, 2012 08:34 AM #80
Rainmaker
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Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

Hi Alan. Great blog on short sales. It does make them seem quite intimidating though! :)

If you know anyone who is thinking of listing a short sale up here in Wisconsin, I'd be happy to help.
After you've done 5-10 of them, they become a little easier to handle mentally.

The first hurdle is getting used to the banks saying they didn't get your paperwork... for the 5th time.
Short sales definitely teach you patience!!

Apr 02, 2012 12:15 AM #81
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Michael - patience is an important attribute of a short-sale agent.

Apr 02, 2012 12:32 AM #82
Rainer
36,540
Ken Anderson
Apex Results Realty Inc., Brokerage - Burlington, ON
Broker in Burlington, Ontario

Forgot the April Fool!  Hope not Alan

Apr 02, 2012 01:51 AM #83
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Ken - "Forgot the April Fool!  Hope not Alan" - huh?

Apr 02, 2012 02:11 AM #84
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Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
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Hey Tim has a good sense of humor.  We all need him and the that fine looking dog to help us when short sale negotiating gets nuts!

Apr 02, 2012 11:21 PM #85
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Anna - I'll see what we can do about getting "the that" fine looking dog to help.

Apr 02, 2012 11:44 PM #86
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Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Alan I totally agree with #45.  This is a MUST reblog.

Apr 04, 2012 05:35 AM #87
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Alan May
Coldwell Banker Residential - Evanston, IL
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Charita - why thank you ma'am.

Apr 04, 2012 05:48 AM #88
Rainmaker
508,351
Sylvie Stuart
Realty One Group Mountain Desert 928-600-2765 - Flagstaff, AZ
Home Buying, Home Selling and Investment - Flagsta

Great short sale breakdown! Even though they are prevalent, there is still a lot of confusion out there!

Apr 10, 2012 10:22 PM #89
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Sylvie - that's the understatement of the year.

Apr 10, 2012 10:47 PM #90
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