Understanding Loss Mitigation

It can be difficult for us as investors to understand loss mitigators, and there will be times during the negotiation when the lender will do something so inexplicable that all you'll be able to do is scratch your head. But what you have to remember is that you're both actually on the same side, although at times it will feel far from it. What I mean is that each deal has its own complexity and you and the loss mitigator will need to work together to get the deal done. There's just no other way.

Some of the loss mitigators that you're working with are handling over 200 files, some far more than 200! If you want to get off on the right foot, the one thing you can do is make sure that you have all the documentation that the bank will require in order to open a file on your property. Everything that the lender asks for needs to be accounted for, and I do mean EVERYTHING. If there is anything missing from the short sale package, it must be documented in the seller's hardship letter.

So what do you need in your complete short sale package?

Obtain and submit the following:

1. Authorization Form

2. Handwritten Hardship Letter

3. Purchase Agreement

4. Addendum to Purchase Agreement

5. 2 Years Tax Returns

6. 2 Months Bank Statements

7. 2 Most Recent Pay Stubs

8. Mortgage Statements

9. Borrower's Financial Form

10. Detailed Repair Estimate

11. HUD1

If your seller is resistant to giving out all of the financial information required, explain to them that the bank could take a huge hit on the loan and they need to verify that you are who you say you are financially in order to seriously look at the short sale offer. Put all of the materials together and fax them over to the lender and wait for it to be assigned. It can take, in most cases, at least a week for the package to be assigned, sometimes longer. Once the package is assigned, you will begin negotiating. This is where it gets fun...

After negotiating hundreds of short sales, we've found that there are several components that have to happen to successfully get a short sale approved.

Here's a quick list.

1. Submit a COMPLETE short sale package and make sure it gets assigned to a loss mitigator quickly.

2. Be "pleasantly persistent". Remember, the loss mitigator that you're working with could also be working on well over 200 other files.

3. Find out who owns the loan - FNAM, FDMC, FHA, VA, conventional.

4. Pleasantly explain to the loss mitigator your offer and push to have them order a new interior BPO immediately.

5. Conduct an effective BPO.

6. Make sure you pull a title report so you know exactly what's on title.

7. Ask the bank the BPO number.

8. If the bank won't tell you the BPO, get them to make a counter offer.

9. Submit counter offers with additional proof to validate your offer.

10. Make sure the lender knows that you're a CASH buyer and can CLOSE QUICKLY.

The key to understanding short sale negotiation is to understand how lenders look at negotiating short sales. A couple of years ago I heard that lenders were losing an average of $35,000 for each property going into foreclosure. Last year I heard the number had grown to $54,000 per property and just recently I learned that lenders only receive 59% of the original balance loaned when they foreclose on a property. Loss mitigators have a lot on their plates, but as long as you play by these rules, you will be negotiating with them like a pro in no time.