The Complete Short Sale Package

Here’s another smart negotiating tip for short sale investors. If you want to encourage a lender to work with you, your best bet is to have all of the paperwork together in one place at one time. Some loss mitigators are juggling around 200 files at a time, and if your file isn’t complete, it’s probably headed for the bottom of the pile.

I want to go into a little more detail about the short sale package that you submit on behalf of a homeowner who is in trouble. Now, this may not be an exhaustive list of every piece of paper that every lender wants to see. Consider this your own personal launch pad!

Your first step in preparing the paperwork is to find out what both the lender and the mortgage investor need from you, and in what form. For instance, one lender might use their own paperwork and another might use the standard government paperwork for something. You will need to know the maximum discount that will be accepted on that mortgage loan before you decide on the amount of your offer. Once you have that information, you are ready to move on.

The complete short sale package includes two types of documents: one set of paperwork that you need the seller to sign, and one set of paperwork that they need to give you which proves certain things about their financial situation. Check out the Strategic Real Estate Coach website if you have any questions about any of these important documents.

Have the seller sign the following:

Authorization Form: You need something that gives you the legal right to speak to everyone about the short sale on the seller’s behalf. Without this, nobody will even consider speaking to you.

Option Contract (Purchase and Sale Agreement): For the short sale investor, there is nothing like the Option Contract. This contract expands the Purchase and Sale Agreement to include special provisions for short sale transactions, giving you the control you need to move ahead or back away depending on factors out of your control.

Affidavit of Understanding: Protect yourself and the seller from misunderstandings. Put it in writing that you understand their situation and they understand yours. Disclose everything you need to here. Don’t skip this one!

Financial Budget Form: The Freddie Mac form is almost universally accepted by lenders. Have the seller give you the information and sign the form. Next, ask the seller to give you copies of the following documents. Better yet, borrow the originals and make copies for them. Make sure you have crystal clear copies when you fax all this stuff to the lender.

Hardship letter: This needs to be a handwritten letter from the seller to the lender explaining why their current financial situation is bad enough for the lender to allow their mortgage loan to be discounted. Get the seller to put some detail into the letter, but keep it down to one page.

Mortgage statement: Find out ahead of time, but the lender may only need the most recent one.

Last two tax returns, bank statements, and pay stubs: The lender just needs to verify what’s on the budget form.

Listing Agreement: If the property is already listed with a real estate agent, include a copy of their contract.

Finally, you need to gather the following information.

Detailed repair estimates: This can be a simple list of major repairs and an estimate of what it will cost to make each repair. Total the individual estimates at the bottom of the page.

Pre-approval letter from the buyer’s financing: The lender will feel a lot better if you can prove that there is a serious offer on the table before they agree to a short sale.

Preliminary HUD-1: Show the lender what the complete transaction would look like if they chose to accept your initial offer. It’s mostly just a courtesy, since the initial offer is rarely accepted.

When you have everything together, have the documents notarized and add a cover letter to explain your offer. Fax the whole package to the appropriate number, and follow up with a phone call to make sure all pages were received and forwarded to the right department.

That’s it - your complete short sale package has been submitted! Now, gear up for the negotiation, find the right spread, and close the sale!