What’s in a Short Sale Package?

You want to make the entire short sale package extremely easy to review, because you are presenting it to a loss mitigation negotiator who is overworked and underpaid.  Look at the entire package from the negotiator’s point of view, and make it easy to recommend it for approval.  If you put in everything necessary, in a format that is easy to review, you are much more likely to get an approval.  For example, put the loan number on every page of the package.  It is an administrative pain for you, but it is a sign of courtesy for the negotiator who will know that you are experienced and considerate.  This will also prevent some of your papers from being lost.   Similarly, include a recent mortgate statement from the lender so that the loan is easy for the negotiator to identify.

Find out what this lender wants in the package and give them everything they want, and no more.  Some of the lenders put their requirements online, like the package for EMC.   Compare this to what Aurora requires by clicking here .  Bank of America does not want all this stuff, as they get too many short sale applications for the size of their staff.  They ask for a HUD-1, financial information on the seller, a hardship letter and a letter authorizing them to talk to you.  Other lenders will send you their requirements by fax or email.   Still others will play “guess again” by telling you to send in a package, then telling you that you did not send in what they wanted.   Let’s look at the items normally required in a short sale package.

I start my package with a trial brief that begins with a summary of what is in the package and points out why every element submitted supports a short sale.  At the end of this trial brief, I include any problems with the property that make it evident that the lender would not want to foreclose on the property.  The most dramatic are mold, toxic material, a former meth lab and dangerous illegally built structures are all hazards that the bank will not want to have to sell, because even though they sell a foreclosed property “as is” the bank will still get sued.  My favorite was a series of illegal retaining walls nearly three times the height allowed by the zoning regulations that were so poorly built they were leaning from the weight of the illegal grading heaped on them.   If you have these items, include some compelling presenation, such as pictures or bids for the cost to remedy the problems.   In other words, this trial brief frames the review and leads the negotiator to the conclusion that approval of the short sale is in the lender’s best interest. 

The most important part of the short sale package  is the hardship letter, so I put it before all the other materials to set the tone of the review.   It is so important that it is covered in a separate post “Do a Compelling Hardship Letter.”

The next part of the package concerns the offer.  I put in a one page summary of its essential terms.  The negotiator deals with contracts from all over America, so do not make them dig out the essential terms from a long contract.  Include the entire contract, and make sure it is completely executed by all parties.   You are dealing with administrators who check every signature and set of initials.  I have even had ASC, the lender, say they would not accept electronic signatures on the contract in the short sale package even though the closing attorney said electronic signatures were legally valid.

  The loss mitigation negotiator gets the best understanding of the offer from the  HUD-1 settlement statement.  It  must show the estimated payment to the lender i.e what you want the bank to settle for.  I put a large arrow by that number to make it easy for the reviewer to find it.  The tips for preparing the HUD-1 are covered in a separate post “Do an Accurate Closing Statement.”   An essential part of the presentation of the offer is a pre-approval letter showing that the buyer is sure to get the financing.  The loss mitigation negotiators are sensitive to the recent trend of short sales being approved for deals that do not close.  So, prove that this one will close.  For cash buyers, include a letter from the bank manager saying the cash is in the bank, or a bank statement showing a balance large enough to close.

The next part of the package deals with the marketing of the property.  The negotiator needs to know that the property was fully exposed to the market.  Enclose a copy of the listing agreement.  Since the new Fannie Mae policy says that the banks should not cut a commission so long as it is not above 6%, I would suggest a commission not to exceed 6%.   A summary of the history of the listing helps by showing the date listed and the original listing price, then the date of any price reductions.  If you started marketing the property at a price that would pay the bank in full, point that out to indicate that you tried to get the lender fully paid, but the market would not support that price.

The next group of items concern the financial qualifications of your seller.   The bank will normally want their own financial statement filled out.  Since the negotiator is used to reviewing that form, it is much easier to review the bank’s form instead of your form.  You want the financial statement to show that the seller is not able to cover the monthly expenses, so that the negotiator will conclude that the seller cannot afford to keep on paying the mortgage.  If the seller is self employed, you may need to send two years of tax returns.  Some banks will want tax returns even if the seller is not self employed.  Be susre to include all the schedules that are part of the tax return.  Normally, the last two pay stubs are required for a seller who works for a firm, while a recent profit and loss may be required for a self employed seller.   Be sure to check to see how many pay stubs covering what period of time the lender wants, and avoid delays by getting it right the first time.    This part of the package finishes with the last two month’s bank statements, or however many statements the lender requests.  Be sure to discuss any large deposits on those statements, particularly if the seller took those funds out of a retirement account.  You do not want the negotiator to get the wrong impression that there is a large income when there is not.

You should have sent in the letter of authorization for the bank to talk to you before you send in the package, so that it can be reviewed and approved.  Include another copy with the package to make it easier for the negotiator.

Remember the rule about not submitting anything the lender does not request?  You break that rule if you have good market statistics in a graph or other visually compelling medium that show the market is declining rapidly. 

Most loss mitigation departments will require you to fax this entire package to a particular number.  Set your fax on Fine, so the quality of the documents is better.  Also, you may have to fax in the middle of the night to avoid a constant busy signal.  If you have a problem getting the fax to the loss mitigation department, ask to talk to a supervisor then see if you can fax it to her fax machine.

Whatever you do, send the entire package by mail, with a signature required.  They may tell you they only accept the package by fax, but mail it anyway.  You want the signature to prove that it was received.   My record is faxing a package four times to ASC, having confirmation from my fax machine that it was received each time , only to have them claim it was not received.   If they know there is proof of receipt, you will avoid this problem.

Providing a complete short sale package makes it much more likely that your offer will be reviewed more quickly and greatly increases you chance for lender approval.