There’s good news and bad news about short sales!
The good news is that if you can follow a checklist, you can submit a short sale package to the lender.
The bad news is that the checklist of documents can be daunting to say the least!
The best advice is to contact the lender prior to submitting your package to get their list in the event they have additional requirements, want specific components on their paperwork/letterhead, etc. Each lender is different, so it pays to take a few minutes up front to get the lender-specific list of documents. If you’re going to be active in the short sale business, it’s a good idea to keep a file for all the documents from each lender and update it as necessary.
Here are the 14 things you’ll generally need to have together when submitting your short sale offers to the lender. Again, some of these may differ slightly based on the lenders requirements.
- Table of Contents
- Offer Sheet/Cover Letter
- Authorization To Release
- Contract
- HUD1
- Proof of Funds/Pre-approval letter
- Listing Agreement
- Hardship Letter
- Financial Worksheet
- Pay Stubs
- Bank Statements
- Tax Returns
- Repair Estimates/Home Inspection Report (Photos)
- Comparable Sales (Comps)
Let’s touch on each of these briefly…
Table of Contents
You’ll want to have a cover letter attached to all of your offers. Be sure to include the loan number (include this on all pages of the package as well). Consider your cover page to be like the “table of contents” for your package. This way, it’s easy for the loss mitigator to find all of the information and to easily notify you of any missing pages. It also makes it easier when you’re on the phone with the loss mitigator as you can refer to specific pages in the documentation.
Offer Sheet/Cover Letter
Let the lender know who you are in relation to the transaction. Highlight the problems with the property and let them know how much the bank will receive – bottom line number. Be sure to explain why they should accept YOUR offer.
Contract
This is your actual offer. It’s the fully executed contract between you and the seller directly. You will want to avoid excessive contingencies and be very clear with all the disclosures, terms, dates, etc. The cleaner this contract, the better.
Authorization to Release Mortgage Information
This is a one page document that allows you to speak with the lender (short sale and loss mitigation department). Without this, the lenders cannot speak to you on behalf of the seller. Lenders may require a specific authorization form depending on which lender you are working with. Again, it’s a good idea to call the lender and ask for their short sale package in the event they have specific forms and documents on which they want information.
HUD1 or Settlement Statement
This is where it comes in handy to have a title company or an attorney to work with. They can put together a HUD for you in a matter of minutes. Be sure to clearly state that this is a PRELIMINARY HUD. You don’t want to come down to closing day and be fighting over it. This is designed to show the lender exactly how much they should net, what’s being paid for, and where all the funds are being dispersed.
Proof of Funds/Preapproval
The proof of funds or preapproval letter assures the lender that there’s a real buyer on the other end of the transaction. If you’re working with an end buyer, you’ll want the preapproval from the lender. If you’re looking to do the deal directly, you’ll need to obtain a proof of funds letter. (To get access to unlimited proof of funds, click here). You can get up to $4,000,000 on any transaction when you’re a part of this program.
Listing Agreement
One of the benefits of working with Realtors is the fact that most lenders are now requiring proof that the property has been listed and that it is actively being marketed for sale. Depending on the lender, they may require a specific timeframe the property be listed prior to considering the offer. Consider also including the listing history, if applicable. Explain what’s happened during the time it’s been listed. Consider including feedback from showings if you have the data available as well.
Hardship Letter
This is the homeowners “case” for the lender. Encourage the homeowner to hand write this and sign it. They should talk about what happened, how they got behind, their circumstances and why they are unable to make the payments and what they’ve done to try and correct the problem.
Financial Worksheet
Many lenders will require the borrower to fill out their own financial worksheet. In some cases, they will accept a generic financial document. Be sure to contact the lender on this prior to submitting the package to make sure you send them what they need from the start.
Pay Stubs
The last W-2 statements if the person is employed by a company. If the person is self-employed, there are other acceptable forms of documentation from profit and loss statements to bank statements with letters of explanation, etc. Find out from the lender what they want in this case.
Bank Statements
The last two months of bank statements from all personal accounts.
Tax Returns
The last two years tax returns.
Repair Estimates
The lenders will want to know why you are asking for such a substantial discount. If you can substantiate this with specific numbers, it makes your case that much stronger. Use a contractor that you often work with or software such as Fixing and Flipping to get these number. Be as specific and detailed as possible here highlighting everything that possibly needs fixing, cleaning, repairing, etc.
Comps
The lender is going to have his/her own agent go out to do a BPO (Brokers Price Opinion), but you’ll want to include your comps for justification as well. Include active, closed, and pending. Include any information regarding condition as well. Using a property analysis report will often make this easier for the lender and it’s a great presentation so they can see specifically what they’re looking at.