Hardship (5)

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Banks grant short sales for two reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.

The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines, but the basic procedure is similar from bank to bank.

A few examples of a hardship are:
Unemployment / reduced income
Divorce
Medical emergency
Job transfer out of town
Bankruptcy
Death

The seller’s short sale package will most likely consist of:
Letter of authorization, which lets your agent speak to the bank.
HUD-1 or preliminary net sheet
Completed financial statement
Seller’s hardship letter
2 years of tax returns
2 years of W-2s
Recent payroll stubs
Last 2 months of bank statements
Comparative market analysis or list of recent comparable sales

Writing the Short Sale Offer and Submitting to the Bank

Before a buyer writes a short sale offer, a buyer should ask his or her agent for a list of comparable sales.

Banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to market value.

The short sale price may have little bearing on market value and may, in fact, be priced below the comparable sales to encourage multiple offers.

After the seller accepts the offer, the listing agent will send the following items to the bank:
Listing agreement
Executed purchase offer
Buyer’s pre-approval or proof of funds letter and copy of earnest money check
Seller’s short sale package.

The Short Sale Process at the Bank

Buyers may wait a very long time to get a response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process.

Buyers may get so tired of waiting for short sale approval that they may feel the need to threaten to cancel if they don’t get an answer within a specified time period.

That type of attitude is self-defeating and will not speed up the short sale process. If buyers are the type with little patience, perhaps a short sale is not for them.

Following is a typical short sale process at the bank:
Bank acknowledges receipt of the file.
A negotiator is assigned.
The bank orders a valuation of the property.
The file is sent for review or to the investor.
The bank may then request that all parties sign an Arms-Length Affidavit.
The bank issues a short sale approval letter.

Some short sales get approval in 3 weeks. Others can take as long as 12 months. A typical Short Sale transaction takes 4-6 months to complete.

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Just received a charming Christmas Eve short sale "decline" after patiently waiting since August 2012 for an approval.  Reason - "strategic default" - DECLINED.  

This loan is through the SchoolsFirst Federal Credit Union formerly the OCFTCU.  My seller had to relocate her mother and father to care for them as her mother was diagnosed with cancer early last year.  She and her parents purchased a home together where they live now.  She is $150,000 upside down on her existing home.  She has a tenant in the home but it does not pay the mortgage with a $1,000 negative each month.  She cannot afford to keep both homes and pay for her mother's care.  

This hardship is not considered a hardship in the eyes of the CU.  It breaks my heart to tell her the news the day before Christmas.  No one expected this.  The credit union obviously ran her credit and found the new mortgage and made their decision.  We explained the situation just as I have here.  The new mortgage has all three names on it.  

Be careful of the strategic default!

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Green Tree Short Sale rental property - Florida

This is a great site and a great resource. Thank you to all the experts providing their time and knowledge to help. New here so forgive my lengthy post.

I would very much appreciate some guidance with the early stages of a short sale process with Green Tree.

Some quick facts:

• Short sale paperwork submitted two weeks ago for one property, 2nd to follow shortly.
• Only response from GT so far was to request payment. After refusal from seller, GT representative asked for further details on hardship letter (she felt it was not enough)
• Cash buyer is interested in both properties. Ready to purchase if Green Tree approves.
• Two condos located in West Palm Beach/Greenacres, FL area.
• Approximate market price is $50k-$60k each. Less than a third of the initial purchase price.
• No second mortgage
• HOA fees paid up to date
• Both are currently rented
• No payments made for October and November 2012

Questions:

1. Green Tree rep asked that hardship letter be amended to elaborate on the hardship. Does the initial hardship letter have to include all documentation (Figured info would be provided as requested from GreenTree)?
2. How should the rental payments from both tenants be handled?
3. Seller has owned property since 2005. Owns two other properties that are not underwater, one being primary residence. Overall debt exceeds income on a monthly basis and needs to get out from under the Florida properties. Other hardship factors are; care of elderly parent, expense to maintain properties, car needed for work has recently broke down and notice from employer of job abolishment. Any tips on when and what to provide in regards to making the hardship case? Seller has decent income but is tentative on how to present the hardship properly.



Regards,
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Will My Bank Still Approve My Short Sale If I Owe Twice What My Home Is Worth?

12433922452?profile=originalMany homeowners who are severely underwater ask this question.  Generally, the reason a bank accepts a short sale is due to the hardship of the seller.  It is not because the short sale offer is close to or far from the loan balance.  Once hardship is established, the issue becomes the market value of the asset.  If market value is half -- market value is half -- there is no way around that.  But, it is your hardship that will qualify you for a short sale -- not necessarily how much or little the bank is going to lose.  

Now, there are other factors that can affect whether the short sale will be approved, like the presence of mortgage insurance, second lien holder demands, or a bad valuation; however the threshold issue will be hardship.  Hardship is an issue that is discussed with much vigor among short sale agents and bank negotiators.  However, despite what some would suggest, there is no clear cut answer.  There are different standards among banks, investors, and servicers, and we are in a different type of time as well -- the economy is down and mortgage lenders and investment bankers engaged in practices that contributed to this economic storm.  

Some short sale agents argue that simply being severely underwater is not sufficient to qualify you for a short sale.  I do not agree.  Some short sale agents say that even if your home is worth half of what you agreed to pay, that if you can “afford” the monthly payment you must continue to pay.  Even if those monthly payments are interest only and the rate is variable.  I do not agree with that either.  And that is, in part because often people think they can afford a payment, but they really can’t.  

Many, if not most of my short sale sellers end up in my office after their accountant or CPA has advised them to do a short sale on their home or rental property.  Their financial advisor understands that they really can’t afford to keep doing what they are doing, even if they don’t.  How far you are underwater is a part of that analysis. Before listing as a short sale, I encourage potential clients to discuss these issues with their attorney and tax advisor, if they have not already.  After those consultations, they often discover that they do have an argument for hardship that they can present to the lender before going the route of foreclosure or bankruptcy.  The bank can then say yes or no.

If you are considering a short sale of your Santa Maria, Orcutt, Nipomo, or Arroyo Grande home, you should seek out an experienced short sale agent to guide you through this process.  If you would like a short sale consultation, please call my office to schedule a meeting or a telephone consultation at (805) 938-9950.

Tni LeBlanc is an independent Real Estate Broker, Attorney, Short Sale Agent and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California.

*Nothing in this article is intended to solicit listings currently under contract with another broker.  This article offers no legal or tax advice.  Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice prior to entering into a short sale listing agreement.  Mint Properties is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.

Copyright© 2011 Tni LeBlanc *Will My Bank Still Approve My Short Sale If I Owe Twice What My Home Is Worth?*
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How do you list an under water home with no hardship. If the Seller is willing to bring the "difference" to the table does the Buyer have to be informed? Does this have to be "announced" in the MLS? I think there will be more of these transactions and I want to address them appropriately. Has anyone heard of the lender reducing the debt when there is no hardship?
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