Step #5 – Contact the Lender
The next step in the process is to contact the lender. First, the homeowner will need to complete and sign an authorization letter for buyers. This letter provides the lender with the seller’s permission to discuss the financial situation with the buyer. After this authorization letter has been provided, the buyer or their agent should contact the lender by speaking with the resource recovery department or the loss mitigation department.
When establishing contact, it is best to avoid talking to the lender’s customer service department or their collections department. These departments are usually only interested in trying to recoup past due payments on the mortgage. The challenge here for buyers and their agents is often trying to get a hold of an individual that can make decisions on the home. This is a point where buyers can benefit greatly from having an agent to help them that has extensive experience dealing with these types of transactions.
Step #6 – Assemble the Short Sale Proposal for the Lender
After contacting the lender, at which time buyers should ask for and receive a short sale application, the entire proposal for the lender will need to be assembled and then sent to the lender. The shortsale proposal usually includes an entire package of essential materials required by the lender, including the seller’s authorization letter, the short sale application and several other documents. The following are some of the important materials that should be included in the proposal sent to the lender:
Buyers should keep in mind that lenders will often refuse to discuss a short sale unless the seller provides a hardship letter. The hardship letter allows the seller to make the case of their desperate situation while convincing lenders that taking the loss of a short sale now would be better than taking a larger loss in the future. Hardship letters must show the lender the seller’s inability to continue paying off the loan, both immediately and in the future. It is important that the seller provides as much documentation and evidence of their situation as possible. This may include the following:
- Divorce papers
- Utility shut off notices
- Evidence of job loss
- Two years of tax returns
- Recent bank statements
- Delinquent accounts
- Recent pay stubs
- Car repossession paperwork
If the lender believes that the seller may have assets or money stashed, they will be less likely to approve a short sale transaction.
Property Value Statement
This may be a broker’s price opinion or an actual appraisal of the property. A lower estimate of the current market value of the property is better for sellers. The goal is to show that sellers would not be able to get enough money to satisfy the loan through a normal sale. This can include a list of problems and negatives that affect the home’s value negatively, showing that the home is undesirable to the average buyer. If a lender realizes that they will end up spending more on the property if they hold on to it, they will be more likely to approve a short sale. Showing a low statement of the property value (although it must be legitimate and ethical) can help sellers get approval on lower offers, since low valuations tend to keep offers from looking as low.
Purchase and Sale Contract
This contract should be signed by both the seller and the buyer and is a contract to purchase the short sale property for a specific price. Lenders do not entertain tentative offers, so it is important to have a specified price agreed upon by the buyer and the lender on this contract. To show desire and ability to carry out the transaction, posting a sizable amount of money is important as well. A nice down payment shows lenders that the new buyer will be able to perform better on their obligations than the current homeowner.
Detailed List of Costs and Liabilities
Buyers need to show lenders that it is better to allow them to purchase the property, which can be done by adding a detailed list of the costs and liabilities to the short sale proposal. Any damages should be photographed and estimates of the repairs added to the package. This also offers potential buyers an excellent opportunity to take a closer look at the property and the time and money that will need to be invested to get it fixed.
A real estate lawyer or closing agent can prepare this statement, which provides an outline of the home purchase price, closing costs and other fees or costs that may be involved with the property transfer. This may also be referred to as a net sheet.