You’ll be assembling vital evidence in a short sale package as
part of your work with the homeowner to put together a short sale. In
preforeclosure deals this package is very important. The short sale
package provides enough information to convince the bank to accept your
short sale offer on the homeowner’s property and get the homeowners
out from the under the obligation.
In your request for a short sale you’ll want to include
everything you can that backs up your request for a short sale.
Obviously, leave out extra evidence that may hurt your claim, but
don’t purposely hide the homeowner’s income or other
necessary pieces of information. You really just want to show the
homeowner’s life at its worst and the house at its worst.
What’s in a Short Sale Package?
Authorization to Release Information: The homeowner needs to sign this
document stating that they authorize their lender, the bank, to share all
vital information concerning their mortgage with you. The bank
won’t talk to you if you don’t have this!
Letter of Agreement and Addendum: This document states that you will
work with the homeowner and the bank to stop the foreclosure, but you
can’t guarantee that the bank will agree to stop the foreclosure
during short sale negotiations with you. Don’t ever forget this
document and make sure you point this possibility out to the homeowners
when working them.
Warranty Deed to Trustee: This basically shows who owns the property
you are attempting to purchase. You’ll need to get a notary to
authenticate this document.
Standard Purchase and Sales Agreement & Escrow Instruction: This
is the standard sales contract between you and the homeowner, since you
will actually be purchasing the property from the homeowner with the
bank’s approval.
Agreement and Declaration if Trust: Keep your name off of public
records with this document which declares a land trust on the property.
Trusts are getting harder to use in many areas. Ask a local pro as to how
they deal with the title.
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Financial Statement: These are the homeowner’s pay stubs, copies
of their past income tax returns and other items that show the homeowners
really are in financial hardship.
Hardship Letter: This is important in pre-foreclosure investing. The
hardship letter allows the homeowners to explain in detail all of the
reasons they were unable to make payments on their mortgage and why
they’ll be unable to completely pay off the mortgage. A good
hardship letter can really help you seal the deal.
Special Power of Attorney: When working in pre-foreclosure investing
you’ll get this signed by the homeowner in front of a notary. It
applies only to the property and lets you make decisions concerning the
property if something happens to it before the short sale deal
closes.
Letter That Trustee is making Payments: This letter indicates
you’ll be taking the property “subject to” and notifies
the lender that payments will be coming from a trustee.
Escrow Letter: This letter tells the bank to apply funds in an escrow
account to the loan balance when the loan is paid in full and the short
sale deal is complete.
Be aware there is no guarantee the bank will comply with the
instructions for your real estate investment. They may send the escrow
proceeds to the original borrower, which is the homeowner.
Residential Real Estate Disclosure: This is protects everyone involved
in this pre-foreclosure investing project. It discloses any defects in
the property and prevents anyone from claiming that they weren’t
aware of certain defects in the property after the deal is completed.
Extra Pre-foreclosure Investing Documents
In addition, are a few extra documents you can include in your short
sale package to get the bank’s attention in this pre-foreclosure
investing deal.
Cover Letter: Make your short sale package stand out with a cover
letter. It basically states who you are as an investor and that you are
requesting a short sale and why the bank should take the short sale.
Opinion of Value: This is a professional estimate or your own
statement from experience in pre-foreclosure investing. You’ll back
it up with a quick list of all the negative points of the property, its
needed repairs and the lowest comparable sales in the area.
Color Photos: Send the bank pictures of the damaged and neglected
areas of the house. They provide photographic evidence of the low market
value of the property and encourages the bank to accept your discounted
offer.
Estimate of Repairs: Get estimates for all of the repairs needed on
the house and include those estimates in your short sale package to back
up your discounted price.
Proposed Closing Statement (HUD1): Eventually you’ll find that a
bank requests the HUD1 form, so it’s a good idea to include this
document anyway. It shows all the fees and payments that will be made to
the parties involved in the short sale.
Notice of Trustee’s Sale: The homeowner receives this notice
when their property is going to the foreclosure sale. You are letting the
bank know that you are aware of the pre-foreclosure investing process by
including this document in your short sale package.
Pre-foreclosure investing is an involved process, but when you
properly complete the short sale package you’ll be one step closer
to this essential part of debt negotiation with the bank. The short sale
package contains information that the bank requests from you and your own
research on the property to back up your request for a discounted sale
price on the property.