The Art of Short Sales » hints

4 Tips to Influencing Your BPO (Broker Price Opinion) on Your Short Sale

Nick — Thu, 11 Mar 2010 21:42:44 +0000

Simply put, the Broker Price Opinion, or BPO, is an valuation or estimation of a property completed by a real estate broker or other licensed individual. The BPO is a “middle of the road” appraisal; and is more thorough than the AVM (Automated Value Model), a system that calculates a value in minutes with no property visit based on historical price, market conditions, and comparables; but not as thorough as an full-blown appraisal done by a licensed and certified appraiser (which can cost twice as much).

For the short sale agent or real estate agent, a BPO is typically ordered by the bank or lender when considering a short sale offer. The BPO value provided by the agent that is a result of the BPO inspection is typically used by the bank to compare against the short sale offer that was made to see if the offer is reasonable. The BPO does not necessarily need to come in lower than the offer being made; but if there is a big gap between the BPO value and the Short Sale offer, the bank or lender will be more likely to question the deal and its validity.

Here’s the kicker: a BPO, like any other appraisal, is still subjective. After all, it is called a broker price opinion. Like anything else in real estate, when it comes to estimating, there is no real “number” for a property, the best there is is a reasonable range. Ultimately a house will only sell for what someone will pay for it, and while we can estimate what that might be all day long, it’s just not possible to know it to the dollar.

The problem with the BPO for the short sale professional is that, as an investor or agent trying to gain short sale approval from the lender, you want the BPO to come in as low as possible (and, of course, still be an accurate number – any lying or shell games here is grounds for serious legal consequences!). Meanwhile, the lender wants the BPO value to come in as high as possible. Since the lender is the one doing the ordering of the BPO here, you can see how the broker will typically work along that “range” in the lenders favor.

There are really two types of BPO’s ordered by lenders, Full and Drive-By. We recommend always pressing for a full (inside & out) BPO. Since we are attempting a short sale on the property, and the owners are having difficulty meeting their financial obligations, it’s very likely the inside of the property is suffering from at least some neglect or damage. Remember, you want the BPO to come in as low as possible; so seeing interior damage is important for the broker to really understand the true nature and magnitude of the repairs that must be done. Also, having the broker visit the property directly will let you meet him or her; which we will talk more about below.

So, what is the broker actually going to actually do to complete the BPO?

Pull comparables
Take photos of the property and the surrounding area
Estimate repair costs
Form an opinion of the properties value in the market
Write it all up on a short report and send it to the lender

That end result – the opinion – can make a huge difference in your deals. If the BPO value is $100,000; and the lender is able to take 90% of BPO value, your net offer will have to be $90,000 or higher. If the BPO value is $120,000; now your net offer will have to be $108,000. A high BPO can and routinely does kill deals. You can sometimes get the bank to order a second (or even a third!) BPO, but your goal should be to get the BPO at a value that supports your short sale offer, the first time out.

So; with that said, how can you (legally!) impact or influence the BPO value?

Be Prepared! The broker will pull their own comparables, and so should you. Remember, everything is subjective. Bring properties and values with you that you think best represent the value of the listing, and share those with the broker. Create your own repair estimates, as well, so you can compare notes with the broker. Your repair estimates should include both the more cosmetic items (like peeling paint and damaged counter tops) as well as the more serious issues (like foundation cracks or a leaky roof).
Show up! Not everyone will recommend this, especially Virtual Investors, because it takes time, but you really should show up, especially if the location is nearby. Also, if you do a lot of business, it will help to develop a relationship with the broker doing the BPO. Don’t be a pain in the ass, but do pay attention to what they are noting! Make sure the broker themselves come to the property (some brokers will unethically send in surrogates for a cut of the lender payment) – and make sure the borrower is NOT home! To control the situation to the best of your ability, you should be the one there answering questions. We shouldn’t have to mention this, but you are a professional, so act like one – dress appropriately and bring a business card along.
Keep the property as-is, no fix-ups! You want the house to accurately reflect the condition it is in. This isn’t an open house; you don’t need light scented candles in each room, dim the lights, put on opera music and place silk Ficus plants in the foyer. If there is damage, point it out. If the broker missed something, make a note of it, especially in areas that they might not look (like the attic or the basement).
Follow Up and Close Strong! When the broker finishes their walk through, you should compare your notes. Ask them if they have an initial ballpark estimate. Many BPO agents will give high values – if these aren’t reasonable, now is the time to speak up. Make sure you mention crime statistics and other neighborhood items if they forgot. You can even give her your suggested property value. Remember, this is your last opportunity to mention anything they missed, so make sure you take advantage of it! Whatever you do, do not be overbearing! Like everything else in the short sale process, you need to be honest with your property, but ethical as well. Being reasonable with the broker will earn you respect.

So, there you have it. The BPO process and how you can help influence the outcome in a nutshell. Any stories on what you have done to handle a BPO? Any horror stories? We’d love to hear them in the comments!

Short Sale Questions and Answers!

Nick — Sat, 27 Feb 2010 19:46:38 +0000

Is a Short Sale RIGHT for the Borrower?

This is a question often asked by both people facing foreclosure.

Why would someone sell his or her house utilizing a Short Sale method? To put it simply, to avoid a foreclosure on the homeowner’s record and to decrease the length of time a lender will require prior to lending to the borrower again and the cost of a reduced credit score. How long? Lenders indicated 18 – 24 months of “Good” payment history on the borrower’s credit report for individuals who went through a short sale compared to 3 to 7 years for those that went through a foreclosure.

Everyone Wins

It isn’t often in real estate transactions that virtually all parties with a financial interest can be winners in the same transaction. A successful Short Sale is one of those rare situations where everyone wins.

The Seller Wins by avoiding foreclosure and all the credit damage that goes along with it. The property gets sold, all the loans get paid off, or forgiven and the existing lender pays all the sales costs. In most cases, the Seller has no out-of-pocket expenses.

The Mortgage Holder Wins by reducing the loss they absorb to get the delinquent loan off their books. Mortgage companies know that the costs associated with acquiring a property through a foreclosure hit their bottom line – hard. To resell the property, the mortgage company frequently needs to invest money in clean up and repairs, and they need to pay staff to manage and maintain the property as well. This is precisely why they have set up Loss Mitigation Departments to resolve delinquent mortgages before the foreclosure is complete.

The Buyer Wins by acquiring a property at below market price. While some Short Sales will be bigger bargains than others, nearly all Short Sales will represent a good deal for the buyer. This is especially true for buyers who intend on making the property their personal residence.

Why would a lender accept a short sale?

In today’s economy of rising foreclosure rates, most mortgage lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage, more commonly referred to as a short sale. If a borrower is faced with a hardship that makes it likely that they will be unable to meet their obligation on their mortgage the lender typically prefers to settle the matter as opposed to taking the property through foreclosure.

If a lender does take back the property there are not any guarantees that they will recoup their cost and have their original loan paid to them when they sale the foreclosure property. Keep in mind, the lender would become responsible for a variety of costs, including property maintenance, utilities, HOA fees, and might risk destruction of the property by vandalism. Furthermore, lender-owned properties (REO) may take a long time to sell, in part because so many REO properties are now for sale.

Not to mention the reserve requirements. For a loan which is in “Normal” status, meaning that the borrower is making on time payments and is not delinquent or in foreclosure banks, must hold in reserve a certain percentage of their deposits. This number is usually around 3 percent of the deposits on hand. The issue is that banks must keep a reserve against anticipated losses. In fact, in the state of California, newly chartered state banks need to set aside reserves against loan losses equal to 5 years worth of losses for banks of similar size.

For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. Because of this, the lending power of a bank is diminished and the loss to the banks of their ability to make additional loans utilizing the same amount of reserve is extremely hampered.

If mortgages perform poorly after they are sold, it could impact the lender’s ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.

Lender’s Options upon Borrower’s Loan Default

Foreclosure:

In order for a lender to recover their outstanding loan balance of a non performing loan, the lender may begin the foreclosure process and seize the property. To do this, the lender must foreclose on the defaulting borrower’s real property which secures the loan.

In the state of California, there are two types of “foreclosures”: A trustee’s sale and a judicial foreclosure.

On certain loans, a lender has no choice and must conduct a trustee’s sale. With a trustee’s sale, a lender cannot go after a deficiency judgment. A deficiency occurs when the current market value of the property is less than the loan on the property.

Loan Workout:

Basically, the borrower and the lender work out a modification of terms of the original loan agreement. Some of these options may include a forbearance agreement, deferment of outstanding loan payments, renegotiating the loans interest rate, which affects the monthly payment amount, even reduction of principal amount and loan payoff date.

Forbearance Agreement:

A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

The borrower’s promise to remain current on the mortgage going forward

Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.

Deed in Lieu of Foreclosure:

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender and cost associated to a foreclosure.

Short Sale:

A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan.

Short Payoff:

With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan. The property need not be sold. Just a note however, that some lenders do not differentiate between a short sale and a short payoff.

How is the Borrower’s FICO score affected?

The disadvantage for a seller who has a foreclosure is much greater over a seller who goes through a short sale. Here are the numbers involved:

Foreclosure on the Credit Score

A seller who goes through a foreclosure and has a foreclosure on their record may have a reduction of 250-280 points on their FICO. If the borrower started off with a FICO score of say, 725 prior to a foreclosure, after a foreclosure is posted against their credit score their FICO could be severely less then 500. What is worse, is that the foreclosure will be on their record for 7 years.

Short Sale on the Credit Score

The affect of a short sale on a Borrower’s credit report is much less damaging and the light at the end of the tunnel is much brighter. First, the short sale will show up on the borrower’s credit repost as a pre-foreclosure in redemption status rather then a completed foreclosure. The reduction of the borrower’s credit score is typically only 80-100 points. The above example would be a reduction from 725 on the FICO score to only a 625 FICO score. As you can see, the difference between a 625 FICO score and a sub 500 FICO score is tremendous.

Is the method by which lenders report a short sale a negotiable item?

Typically speaking, no. The short sale is usually reported to credit reporting agencies as settled for less than the full balance. Remember, the short sale shows up as a pre-foreclosure in redemption not a foreclosure.

What is a deficiency judgment?

A deficiency judgment is a judgment obtained by the lender in court against the borrower for the difference between the unpaid balance of the secured debt and the amount produced by sale or the fair market value of the security, whichever is greater, in a judicial foreclosure. A lender may obtain a deficiency judgment only with a judicial foreclosure. With a trustee’s sale foreclosure, the lender cannot go after a deficiency judgment.

There are five situations in which a deficiency judgment may not be pursued:

Trustee’s Sale – A lender may not pursue a deficiency judgment against the borrower should the lender opt to foreclose by a trustee’s sale foreclosure.
Seller Carryback – If the purchase money loan for any type of real property is financed by the seller and secured by that same property, the lender/seller may not obtain a deficiency judgment against the defaulting borrower/buyer.
Purchase Money – If the loan is obtained to purchase a residential 1-4 unit dwelling all or part of which is owner occupied and the loan is secured by that property, the lender may not obtain a deficiency judgment against the defaulting borrower. This loan is entitled to “purchase money” protection. Note, however, that should the buyer refinance the home, the new loan is no longer “purchase money.” Thus, the buyer would lose the protection against a deficiency judgment in the event of a default if the lender elects to use a judicial foreclosure process.
3 Month Time Limit – An action for a deficiency judgment must be brought within 3 months from the time of judicially-ordered sale.
Fair Value Limitations – A deficiency judgment is limited by the difference between the amount of the indebtedness and the fair market value of the property, unless the actual sale price exceeds that value.

Holders of a junior deed of trust (second, third, etc.) should note that if the “wiped-out” junior lien is not purchase money or seller carryback, then the junior lien holder may sue on the note and the borrower on the junior loan may be personally liable.

What are the hardships that a bank looks at as justification for approving a Short Sale?

(See our earlier blog post about writing a Hardship Letter for more tips!) The borrower must have a legitimate excuse for falling behind… The inability to pay the mortgage, the loss of a job, death in the family or an illness would be an acceptable reason to fall behind on your Mortgage temporarily.

A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.

Family illness or injury

Illness or injury in the extended family – particularly if it forces relocation

Job relocation when the property is equity deficient

Job loss or significant income loss

Divorce or split of domestic partners

Adjustment in mortgage payment or unforeseen increase in living expenses

Also keep in mind that if the borrower has other assets, like real property, or the ability to borrow money the lender is not going to accept borrower as having a hardship.

I am current on my mortgage; will my lender consider a Short Sale?

The answer is, maybe. Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent.

There are two loans; can a Short Sale still be accomplished?

Yes. You can work with both lenders (many times the same lender holds the 1st and the 2nd loans) to put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, you can normally get the two lenders to cooperate.

The property is in rough shape and needs work; can I still do a Short Sale?

Absolutely. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs a lot of work.

Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix- it business.

The process is a difficult process to say the least. It requires training and understanding of the laws and lender procedures.

What are the tax effects of a short sale?

Great news has come out of Washington that help people facing foreclosure or short sale. Until recently, if the value of a borrowers house declined and their bank/lender forgave a portion of their mortgage (via a short sale or deed in lieu), the tax code treated that amount forgiven as ordinary taxable income.

For a borrower already financially strapped, this makes a bad situation worse. When a borrower is worried about making their payments, higher taxes are the last thing you need to think about.

On December 20, 2007 the “Mortgage Forgiveness Debt Relief Act of 2007” became Public Law No: 110-142. The law is retroactive to January 1, 2007 and will extend until December 31, 2009. The passing of this bill creates a three-year window for homeowners to either refinance their mortgage or sell, and pay no taxes on any debt forgiveness that they receive.

The newly-enacted relief for mortgage debt forgiveness is Congress’s response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets. Thus, when a lender forgives some portion of a borrower’s mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will NOT be required to recognize income or pay tax on the forgiven amount.

Here is an excerpt of the law:

“Mortgage Forgiveness Debt Relief Act of 2007 – Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent. Extends through 2010 the tax deduction for mortgage insurance premiums.”

It is strongly recommended that the borrower seek the advice of a professional tax advisor.

If a borrower does do a Short Sale, how much will they have to pay to sell their home?

Zero. A borrower cannot pay, nor receive, any proceeds from the short sale of real property. All costs, commissions, title, escrow fees, repairs and such are paid by the lender as part of the Short Sale approval.

The agreement to sell is subject to approval by existing lender(s) of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow.

7 Top Ways to Blow a Short Sale

Nick — Fri, 15 Jan 2010 20:25:50 +0000

by Guest Contributor Ted Akers of InvestorFundingSite

I cannot take credit for this one, but thought it worth a Post for those of you pursuing Short Sales.

Pre-list on eBay. While eBay has become a household name and is frequently used to drum up interest in short sales, it is also a time consuming headache fraught with problems for short sale investors. Homeowners routinely screen listings and are likely to take issue with price variations especially once their relatives begin telling them how it is worth so much more. Be prudent and use eBay with caution.
Playing Nice with Bad Lenders. It’s essential to separate the good from the bad when it comes to lenders and obtaining financing. Don’t even think of playing the role of investor until you have all your ducks in a row when it comes to finance.
Making a Stupid Offer. Really, it’s done all the time. Have an escape clause in place especially when just getting started so you can kill your offer without having to lose face or a lot of cash. Better yet, have several contingencies in place but keep them realistic so you don’t frighten away other stakeholders.
Selling to Everyone. The world might be your oyster but it’s not your target audience. Know your market and make sure the message fits to maximize results. Know the needs of the homeowner, broker, agent, appraiser and all others then make a point of giving them exactly what is required every step of the way.
Fake it Till You Make It. Seriously, you are not as fly as you think. Take a step back to determine what you really need to succeed otherwise, you risk ruining your reputation before it has a chance to take flight. Arm yourself with the right process, the right people and the right property before you sign on the dotted line.
Assuming Dates Don’t Matter. Everything is time critical when it comes to short sales. Get it in writing, get it on time and deliver by the dictated date…always.
Irrational Exuberance. Don’t spend money before it’s in your account. Don’t forget the taxes and whatever else you do…don’t fall in love with any property.

By guest contributor Ted Akers of Investor Funding Alternatives, LLC, a website helping investors get transactional funding (also known as flash-cash or a one-day bridge loan). Ted can be contacted at:

Investor Funding Alternatives, LLC.
1220 Forest Trails Drive
Castle Rock, CO 80108
PHONE: (720) 291-9100
FAX: (866) 405-8750
EMAIL: ted@InvestorFundingSite.com

4 Ways to Improve Your Short Sale Package

Nick — Mon, 14 Dec 2009 17:15:12 +0000

From the Tip Bucket, here at Short Sale Artisan

Tip #1: Research the Lender!

Each lender is different, so make sure you know what the lender needs in a short sale package. Many lenders have specific procedures that need to be followed and documents that need to be completed for your package to be considered acceptable.

For example, Citimortgage requires you to fill out their specific Financial Application – if you don’t fill out this document you can hurt your chances for getting your package processed in a timely matter. Each lender is different, so make sure you do your research! Short Sale Artisan’s Education and Marketing section in the site which has lender-specific information to help you out and is constantly updated with the latest information!

Tip #2: Make sure you include all your necessary documents!

Short Sale Artisan has a great Checklist in our system to help you get all your documents identified. There are many documents that are used in the short sale process. Remember, some of these may not be necessary in all circumstances! Make sure that you include everything that is required from the lender you are working with. Leaving something out just gives the loss mitigation department a reason to put your package to the bottom of the stack, and time is critical in the short sale process!

Sales Contract or Deed
Short Sale Offer Letter – this can be calculated and generated automatically with our Offer Generator.
Borrower’s financial statement- get at least 2 years worth of W-2 forms.
HUD Statement Draft - this can be generated automatically with our Offer Generator.
The Hardship letter - see our blog post for more information about how to write a hardship letter!
Paycheck stubs – if the borrower is not working that will need to be explained.
Bank Statements - similar to paycheck stubs, accounts may have been closed. If they are, it will need to be explained.
Credit Report – if it shows the borrower is having a difficult time meeting all their obligations, it will help make the case for a short sale.
Listing Agreement – the bank will want to see that you have the house on the market. Some lenders will require that the property be listed for a certain amount of time before they entertain a short sale.
Authorization to Release information – available in our Document Generator, this document allows investors to work directly with the lenders on behalf of the borrowers
Photos and Repair Estimate – take pictures of the property and estimate repair costs. Check out our post on great links for short sale professionals for some free resources to help you estimate your repair costs!
Executed Bill of Sale – available in our Document Generator – make sure you are very careful with disclosure when it comes to the bill of sale!
Supporting Hardship Information – for example; medical statements if the hardship is illness related.
Buyer Approval – if there is a cash buyer the bank may want proof-of-funds.
Comparables – show properties in the area and what they are selling for or have sold for to help justify the offer. Short Sale Artisan makes this easy to generate with integrated Zillow comparables search functionality
Crime or Neighborhood Data – if the area has seen depressed home values because of circumstances like crime, include that information.
Limited Power of Attorney – available in our Document Generator – more expansive than the authorization to release information. The POA will allow you to negotiate on behalf of the borrower.
Additional Documents – many lenders have specific documents, so do your research and know what needs to be submitted!

Tip #3: Professionalism and appearance are important!

Don’t be sloppy with your short sale package!

Make sure your package is well formatted, professional, and easy to read. Remember, lenders are getting inundated with these packages in overstaffed departments. Having a well-assembled, complete, and logical package that is easy to read will make it that much easier to be processed quickly.

Additionally, keeping your package professional will help to convince the mitigator that you are serious about the offer. Whether it is your first deal or your 500th, you will want to give the impression that you know what you are doing. A professional package demonstrates confidence.

Some general tips which shouldn’t be overlooked:

Spell check – you wouldn’t believe how many investors will submit information to a bank with mis-spelled words. Take the effort to make it right!
Visual Consistency - be consistent in your documentation. This means make the pages look like they belong together. For documents that you generate or type, make sure to use similar fonts, margins, and headers and footers.
Data Consistency - make sure there are no contradictions in your package. Your financial statements should tie to your W2′s which should tie to your hardship letter. Any inconsistencies will quickly bring question to the package.
Make it easy to read - loss mitigators are overwhelmed with these packages. Make them easy to read! Put a little bit of extra space between lines to make it easy on the eyes. The people on the receiving end will appreciate it!
Ensure the package is complete - Make sure your package has everything the first time out. Submitting a half-complete or incomplete package will almost certainly delay the package and frustrate the mitigators, and you want to keep them happy!

Tip #4: Submit your package and follow up!

Once you submit the package to the bank (make sure you follow the procedures you identified in Tip #1!), follow-up to make sure they have the package.

The old saying, “The Squeaky Wheel gets the Oil” is true. It is a bit political; so make sure you balance out annoying the lender with getting them to continue to move forward on processing. Also, make sure if they identify anything as missing from the package you turn around delivery of that as expediently as possible.

Good luck! Do you have any other tips to share? Add them to the comments!

How to Write a Hardship Letter that Gets the Bank to Say “Yes!”

Nick — Tue, 08 Dec 2009 18:29:14 +0000

A well-crafted and ironclad hardship letter is probably one of the biggest components to getting a short sale approval from the bank. Without clear description of the dire straights the borrower finds themselves in, no lender will willingly short the loan. So how do you go about writing a letter that will get the banks attention? Whether you are writing your own letter or helping a homeowner write a letter, here are some things to consider:

1. The Reasons for the Hardship

Be CLEAR about what your hardship reasons are! It could be a number of things, including (but certainly not limited to)

Loss of a job
Illness
ARM adjustment
Property tax hike
Divorce

In any case, you first need to compile and assess what the most compelling reasons for hardship are. Put yourself in the bank’s position as a lender. If there is a way you can make the mortgage payment,they are not going to allow a short on the loan. So be very clear what circumstances have are making it impossible to keep up with the mortgage payment.

2. Be Specific about your Hardship

Once you have established your reasons for hardship, you need to put in the effort to understand how that hardship has impacted you specifically. For example;

Job loss, and family income has dropped by $2400 per month
Medical Bills due to “X”, which total over $50,000
A divorce which puts child support and alimony burdens of $1200 per month
My ARM has increased my mortgage payment by $800 per month

Secondly, you need to demonstrate how this hardship impacts your ability to make a mortgage payment. If you make $8,000 a month and your mortgage went from $1000 per month to $1500 per month; good luck getting them to approve a short sale! You need to show how the hardship pushed you outside of your ability to make the payment.

Banks often think of mortgage payments in terms of percent of gross income, so you might consider using this. Let’s demonstrate with an example. Assume your mortgage payment is $1700 per month. Your household income was $5000 a month and then you lost your job, and the new household income is $2200. This means that your mortgage payment went from a reasonable 34% of your income to a whopping 77% of your income. Any bank will look at that number and say, “Yikes!”

3. Gather supporting information and Market Conditions

Think about circumstances outside of your own that are impacting your market area. Remember, the bank will want to be certain other options have been exhausted – such as selling your house. You will need to show that this is also not an available option. This can be done by doing things like:

Showing a recent appraisal of your home
Understanding comparable sales and the general market in your area
Itemizing pieces of disrepair on the house that negatively impact the properties market value (i.e. an old roof or broken A/C unit)
If the house is on the market, how long it has been one

4. Writing the Letter

ONE PAGE ONLY! Make sure you keep it concise – no lender wants to read a 4-page hardship letter. Get it into a single page!

Keep it in easy to read paragraph format.

The layout of your letter should look something like:

At the top of the letter, put the bank’s name and address. You might want to address it directly to the loss mitigation department. Each bank has unique ways of handling transactions so it helps to do some research ahead of time.
In the RE: line, put in “Request for Short Sale”, and your loan number
Your first paragraph should describe what happened briefly and make it clear you are unable to afford the mortgage. Don’t be ambiguous here – you can’t afford it!
1. RIGHT: “My family has gone through significant hardships recently that make it impossible for me to afford my mortgage.
2. WRONG: “I recently lost my job and we have had to cut out cable TV and gourmet dinners…. it’s getting really tough to afford our payments!
Your second paragraph should talk about the market conditions that have driven down your home value
3rd and possibly 4th paragraphs are details, details, details. Use the information you gathered up above to make your case more clearly.
Closing a- restate that you cannot afford the mortgage, and there are no other options besides a short sale.
Make sure to sign and date the letter, and include your own contact information.

5. Distribute!

Send the letter to the appropriate party (bank, attorney, investor, or real estate agent you are working with).

Once the letter is with the bank, you can feel confident that you built the best possible case towards convincing the bank to accept a short sale!

What do you think?

Do you have other tips or advice on what makes a successful letter? Go ahead and share in the comments!

Why do banks reject short sale offers?

Nick — Mon, 30 Nov 2009 14:54:25 +0000

I was reading this blog over the weekend and it gave some of the reasons short sales are rejected by banks:

The point is short sale involves a loss in the part of the lender. That is why before they accept any request for it, your package, the reasons and all details of your short sale needs to be evaluated properly. Lenders are being strict about this and as much as possible, they would want a loss to its minimum. They would even compare it to the loss they would incur in foreclosure. If the loss is greater, chances are they would rather go with foreclosure.

Reasons for Rejection

Aside from comparison of losses, bank may reject offers for the following reasons:

1. Banks require heaps of documents before a short sale could be accepted. Believe it or not, with so many applications on file, your package could end up missing one or more document. If this happens, your request may be rejected even if it not your fault.

2. The offer was too low. Banks use brokers price opinion to determine if your offer is just right. Remember, offering way below the outstanding balance of their loan would normally mean bigger losses in the part of the bank.

3. Your reason for having a short sale is not justifiable. In short, you are unqualified.

These are just some of the reasons that could lead to short sale rejections. When this happens, there are two things you can do. It is either you just allow the foreclosure to go through or you can still try the second time around.

Counteroffer for Rejected Short Sale Offer

You can always make a counteroffer if your request was rejected. However, bear in mind that the waiting could bring you closer to foreclosure. If you think, you have time, why not. First things first, you need to do the following things:

1. Learn the reasons for rejections.

2. If it was about the price, keep your offer near to the brokers price opinion. However, if you get a BPO for your property, the best thing to do is to use comparative market analysis to keep it close to that value.

3. Your reason for short sale should be hardships. And you must know what kind of hardships is accepted. It should not be about break ups and shallow problems. It should be anything that has lead to financial crisis. However, there should be enough evidence to back it up. So always, have documents on hand to prove such state.

As you can see, these things do not guarantee you that your short sale will be accepted for the second time around. However, it increases your chances of not being rejected. Lastly, just be diligent in making follow-ups so that if problems are encountered along the way, you can do something about immediately.

What comes to mind immediately is how Short Sale Artisan can help with these common problems. Looking at the reasons given for offers being rejected :

Missing / Incorrect Paperwork – Short Sale Artisan makes it easy to generate documents, and see what has been generated and what remains to be done. Documents are always accurate and properly formatted as they are pre-filled with entered data.
Offer Too Low – It’s always easier to lowball an offer and then go up from there; (it’s a lot harder to go the other direction!) , but your offer does need to be reasonable. There are a lot of variables in a short sale transaction and our proprietary offer calculator takes the guesswork out of coming up with that magical number.It will give you suggestions and then you can use your intuition to decide whether to use the offer that is calculated or create your own offer. But creating a reasonable offer which takes into consideration all the factors is a critical step.
You are unqualified - Short Sale Artisan provides you with all the tools you need to be qualified – properly formatted paperwork, professional templates, and task management abilities that put you in charge of the process.

Short Sale Artisan fills the needs and helps you be more profitable by tackling each of these common hurdles. Check us out today!

A collection of great links and resources for Short Sale agents, investors, and professionals!

Nick — Sat, 28 Nov 2009 22:07:22 +0000

The web is all about education and learning so let’s share some knowledge! Here are some great sites we have picked up on that help you do your job:

Home Repair Cost Guide – useful when estimating repair costs to submit to the bank
HUD-1 Official Form - the “official” form!
Field Guide to Short Sales from the National Association of Realtors
Zillow – a great resource for finding comparables and property statistics
Criminal Searches – a great (free!) resource for finding criminal records and sex offenders in an area. Another useful reference when assembling your offer package
Creative Real Estate Online – This site has quite a few very useful and free articles that have to do with short sale investing
Twitter Search – Social networking and connecting with other short sale professionals is always helpful -expand your network! Do a search on “Short Sale” and find others who are posting about it!
Bigger Pockets Forum - This is a great site where investors network and talk about their real estate investments. Another great way to connect and get advice from other members who are actually doing short-sales. It’s targeted to real estate investors.
Google Blog Search – looking to see what people are talking about in the world of Short Sales? A Blog Search is a great way to find out!
REI Club - Similar to Bigger Pockets, another user-driven community of investors who handle real estate investments.
Real Estate Investment Association (REIA) – This is the group of investors, many of whom do short sales regularly. There are chapters in each state and attending meetings is a great way to learn and network with investors.
Trulia – Trulia is a real estate professionals network. From home submissions to blogs, there is a wide range of industry knowledge at Trulia.
ActiveRain – Similar to Trulia, ActiveRain is a real estate professionals network. ActiveRain has more of a focus on networking between real estate professional than Trulia, however.
Short Sale Artisan – Yes, this is our blog so we are going to shamelessly pitch our own product. Short Sale Artisan helps you create offers and documents quickly, generate new leads, connect with lenders, manage tasks and contacts, and more!

So, what else is out there? The Internet is a great resource and information is easily available at your keyboard. What other resources are out there that help you do your job, keep up on knowledge, and more? Submit your favorite resources in the comments!

How technology can improve your Short Sales process!

Nick — Mon, 23 Nov 2009 16:08:11 +0000

Your competition is using it. The banks you are negotiating with are using it. Why aren’t you?

I’m talking about leveraging technology for your short sale business. It’s almost 2010, and surprisingly the short sale corner of the real estate market is still in the dark ages. When we were doing the research for Short Sale Artisan, it was incredible that most investors and agents are still using Microsoft Word and Excel to calculate and create offers and generate documents. The problem is that the templates do not stay consistent and oftentimes formula errors can crop up in Excel without the user ever even knowing. Also, with Word and Excel, your files are locked down on your local computer, so you have to either bring your files with you to conduct business somewhere else or you have to carry a flash drive – and then you end up with different versions of forms, can’t remember which one is the most recent, and so on.

Technology platforms address one of the biggest complaints real estate professionals have about the short sales process: the process is a nightmare! Let’s face it – Short Sales can be lucrative but require an intense amount of work and due diligence. There is very little you can do to speed up the bank (other than be the squeaky wheel!) – but you can make your own process as efficient as possible, by doing a couple things:

Having the ability to create accurate documents quickly
Manage your contacts and tasks so you know who the key players are and what the next steps are
Finding and building a lender network that can meet your unique needs
Having fingertip (or Mouseclick!) access to the news and market information you need

Organization is the name of the game. Staying on top of all you need to do is almost a full-time job in itself. Technology allows you to spend less time managing the process, which leaves you with more time to be productive by pursuing new opportunities! I’m sure we have all seen offices where you couldn’t find a file because the paperwork was so onerous. The short sales process magnifies that problem, and technology is one of the best ways to mitigate it. Short Sale Artisan addresses this need! We currently offer many solutions for improving efficiencies, and have a slew of new ideas to make things even better as time goes on.

And, a note to banks: it’s time to move past the Fax Machine!

We’d love to hear from you! Post in the comments what you think would improve your short sales process and if you have any tips to share with other Short Sales professionals!

Talk to you soon!

-Nick