Bank of America Short Sales & Using REOTrans (Equator)

If you are working short sales with Bank of America (Countrywide) you may have recently found one of your files sent to Equator.com, formerly REOTrans.com. As of this post they are just trialing certain files but it shows some promise but some faults as well.

If you are new to Equator (REOTrans) it may seem a bit confusing and on its own like many things it will take getting used to. Personally I like it because it should eliminate the crap that happens on every file with them. You know the 'we don't have the contract, we are missing this document or that document' response. Now you will be involved with uploading those files so they can't hide behind that one anymore.

Some tools you will need to be successful with Equator (REOTrans).
> You will need a way to create PDF files of your documents. It can either be a scanner or if you use an efax service you can set the service to deliver PDF files and just fax the documents into yourself for uploading later.

> PDF management software. Most lean to Adobe PRO but I suggest something MUCH cheaper. Check out NitroPDF Pro. Much cheaper and does everything you might need to separate nested files for uploading.


Please understand the steps we summarize below are not the official instructions from Bank of America. Why are we adding them here? Quite simply because B of A seems to think we should all know some of this almost 'magically'. It is as if they assume we've received their hidden signal in the radio waves explaining what is needed. Realtors will manage their side of this through the Equator.com web site by creating an account if they on't have one already. I won't be able to go into all the details of the Equator (REOTrans) web site as it is too involved for this post. Most of this is in reference to what they want our home owner to do.

EQUATOR BORROWER STEPS (Home Owner)
> Call to Bank of America at 866-770-7961 to set up thier access.

> The home owner will supply an email address and provide an answer to a security question.

> Bank of America will email at the email address the home owner provided them with a temporary password and instructions to login to B of A. See Sample email letter HERE.

> The home owner will login with the temporary password and are required to set a new password. The new password must be 8 digits in length, contain 1 number and 1 capital letter.

> They will use the answer to the security question they provided on the phone at the bottom of this page to set and approve the new password.

> They can now return to the page and login with their new password.
See Screen Shot of Sign In Page HERE
See Screen Shot of Successful Login Page HERE

The address for the page they are going to is https://shortsale.bankofamerica.com/ (notice there is no ‘s’ at the end of ‘shortsale’)

Bank of America needs the following pages be filled out.
1. Supply Hardship Reason (See Screen Shot of Page HERE)

2. Submit Financial Information (See Screen Shot of Page HERE) Note that only the red asterisk ( * ) are required to be completed.


In the 'What Were They Thinking' column:
Why in the heck are they REQUIRING the borrower (homeowner) to create a login and upload PDF files? First of all so many have spent months avoiding all contact with the banks. Those that are communicating are just hoping this will all be over. Any and all hurdles they place in front of the home owner is just another reason for them to through up their arms and say forget it.Some do not have Internet access.

I know this sounds crazy in this day and age but many are having financial challenges and the Internet has become a luxury. Others in our area have certain cultures that seem to have very low use of the Internet. Those that do, don’t often have a scanner or what is needed to create PDF files for upload the bank is requesting.

For whatever the reason the fact that Bank of America is not allowing the Authorized 3rd Party that is on file to manage this is asinine. They need to fix this soon. Of course as an agent/negotiator you have all the details needed to call in for your client and set this up but that is not what Bank of America wants. An then of course there is the fact that this is all in English! What about all of my Spanish (as well as other) speaking clients that do not have English as their first language?

Okay so nothing is perfect.  I know of other Short Sale agents that hate this system.  I like it but just need Bank of America to see why their refusing the Authorized 3rd Party on file to manage the process for the home owner is not in anyones's best interest.

Top Five Reasons Short Sales Fail & How to Solve Them

There are some very specific reasons that short sales fail. Take a look at my Top-Five. I could easily expand this to 10, 15 maybe even 20 but that would be a bit overkill as they all often stem from the same origins.

Coming in at number-FIVE: Low Sales Price. Priced too low and every short sale is going to fail. Often an issue in areas with high competition and a seller that needs an offer fast. Or when a Realtor new to short sales thinks any offer is a good offer.

number-FOUR: Bank BPO (Broker Price Opinion) came in too high. We see this a lot when the agent doing the valuation is from outside our local area. Meet the BPO agent, show your comps and defend your price. But do it all politely and from a position of contribution. Annoy the agent and the value is certainly coming in high :( (also see last paragraph below)

number-THREE: Buyer backs out after a long wait. This relates to number-ONE below. Keep the buyer agent and buyer in the loop. Even lengthy short sales can make it to closing with the initial buyer when managed correctly. I also suggest getting them vested financially into the offer as well. Get the seller to escrow money to reimburse the buyer if the sale is denied but have the buyer complete all inspections and the appraisal right away. There will be some minor timing issues with the appraisal but once done the buyer feels a bit more tied into this purchase and will often stay for the long haul.

number-TWO: Second Lien Holder Demands Un-reachable. This can be for 3 reasons. The first is again a high BPO on their end where they feel the home is being sold too low, so they ask and push for more. Secondly is when they have their own mortgage insurance and will net a higher bottom line when the home forecloses and they place their claim. Third is when they think the home owner shows that financially they can participate in offsetting their loss so they ask for it anyway. Sure the payoff to the second has to be approved by the first but don't let that make you believe they won't push back hard. The best defense here is having the certified appraisal and holding your ground. Don't get me wrong it doesn't work every time but works 80% of the time for us. The most difficult to deal with is when the second has its own mortgage insurance. the best way to combat that is to push on the first to agree to the amount needed and do all of this while referring to your appraisal if you were able to get that done. Oh and the fourth reason the second lien holders demands might be unreasonable - you have Chase as the second lien holder :)

And my NUMBER-ONE reason Short Sales do not close . . .:
Poor Communication!
Wow, I cannot say this enough. With regular communication to your seller, the buyer agent and follow ups to the banks holding the liens there is no good reason for a short sale to fall apart. I understand it's not a perfect world and things go sideways all the time. But if you are on top of your calls and follow up it is a lot harder to be caught off guard.

It actually serves the greater good of both the seller and buyer to get the appraisal prior to waiting for the bank to approve the short sale. Top Reasons, numbered 5, 4, 2 & 1 can all benefit from having a certified appraisal to negotiate from. No matter what the banks BPO, the appraisal just cannot be ignored. Also if that same appraisal is an FHA or VA it holds with the property and will cause any following buyer to end up with the same value if the banks try to ignore it.

Why I Love Bank of America & Countrywide

I just wish Valentine's Day were closer. I wait anxiously to declare my love officially for Bank of America (and Countrywide). And there is no better time than Valentine's Day to share that special moment.

If you are working with Loan Modifications or negotiating Short Sales you share my feelings I am sure. What an amazing group of people to work with. WAIT . . . you don't agree?! You say I must be crazy, driven here by long hours on hold and not getting anywhere. I beg to differ. There are some great reasons to love them. There really is some comfort in relying on their unreliability. So actually they are reliable because of their continued unreliability. Without fail, every single transaction negotiating with them has been a mess.

They do crazy things like the following . . .

• Provide approval letters that require you close in 7 days. Then conveniently after repeated calls and emails to correct this to something reasonable for all parties they don't respond. Until of course the 8th day and then tell you the file is closed due to non-compliance since we did not close per the approval letter's expiration.
  



• Conflicting answers from their customer service on follow up calls. Operator A states they have the short sale offer but no BPO is ordered. Even though we just let the BPO agent in the day prior. Operator B contacted the next day says "we have the BPO but we have no short sale package on file, please re-submit”.
  



• Weekly follow up calls are answered with 'everything is moving along, there are no new updates’. Then magically on another follow up call we are told the file was closed 3 weeks ago due to non-compliance. When asked what the issue was we find they emailed to a non-existent email address requesting documents they previously confirmed they did have and due to their typo and our ‘lack’ of response they want us to re-submit and start all over. When asked why all other updates stated it was in review and why were we not informed 3 weeks ago of the issue they had no answer.

Now I know it might sound like I am frustrated with them. But come on let us all agree that there is some real comfort in knowing from the start that none of this will run smoothly. Take hold of all your Zen-like powers and find your peace with it. Seriously if we went into our Bank of America negotiations thinking it would be organized and truly geared to the best bottom-line for the bank then we would freak when all hell broke loose. Bank of America (Countrywide) is the quintessential 'Poor Short Sale Negotiating Experience'.

Do enough of these and you will be primed for keeping your home owner and buyer agents calm. We routinely tell our Bank of America clients to go on with their lives the best they can while we work these files. We tell them this is not only going to be a bumpy road but we are getting ready to drive into the perfect storm of short sales. So buckle up, hang on, keep your hands and head inside the moving vehicle and we’ll get to our destination eventually. Sure we’ll be beat up, bruised and exhausted but we will get there. Sadly for Bank of America, and due to this experience, not only did they lose more money by how long the process took they have guaranteed that when this home owner is back on their feet they will NEVER do business with them again, EVER. Every single client of ours has made this exact same statement. Such a shame – But I still love you Bank of America, keep up the shitty work!

UPDATE: A tear rolls down my cheek as I add this update. B of A is actually starting to use REOTrans to start managing their short sales. It’s a trial right now but this might just upset my love affair with them in the long run. But that’s okay, there is always Chase ? (Read my next article on my love for Chase ?)

Canceled Debts and what your CPA better know.

By now you all have heard of the tax concerns for homeowners in respect to short sales and foreclosures. If you are a Realtor you know that you have to stay away from offering advice in a field you have no experience in. Even if you do have experience if you are not in fact the CPA for the client you are speaking with you risk major issues down the road.

Refer your clients to a qualified CPA with any and all questions related to thier taxes. If they are experiencing a short sale or forecosure it would not be the year for them to file on their own.  If you would like to refer your clients to IRS Form 4681 that will define much of what they might need to know. Even with this knowledge I suggest they use a CPA and particularly one familiar with short sales or foreclosures.

IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals)
Download the document at Link: http://www.irs.gov/pub/irs-pdf/p4681.pdf

Loan Mods Failing - Treasury Needs a Plan-B

Here is a great read from the New York Times. Take a second to check it out. Read the complete article here http://www.nytimes.com/2009/12/06/business/economy/06gret.html

If you get a chance check out some of the other great articles from NY Times author Gretchen Morgenson by Clicking Here!

Realtors, Bankruptcy Attorneys are your friend.

It is a shame that an adversarial relationship is the norm between most Realtors and Bankruptcy Attorneys. In the world of working with distressed homeowners we all need to work together to find the best solution for the homeowner NOT for the Realtor or Bankruptcy Attorney.

It is a terrible shame that there are people that search out people in distress and take advantage of them so they may benefit financially. Realtors and Bankruptcy Attorneys are in a position of, on their own, destroy the homeowners they are supposedly working to help. The reason - they both are afraid if the other is in the mix that they might not 'get the deal'. Let's all be professional here and network with each other to help those searching for our unique skill sets.

Realtors are you aware that your marketing statements or conversations with homeowners stating that completing a short sale will be best and that if they need a bankruptcy they can do that later. Welcome to your potential lawsuit in a year or so! For some homeowners the completion of their short sale may eliminate their ability to file for bankruptcy later.

Bankruptcy Attorneys need to know that after filing for bankruptcy the long term interest of the homeowner may best be served by completing a short sale. Consultations with a FICO insider that works the modeling stated that early in 2010 adjustments will start to reflect the advantages of a short sale where the homeowners contributes to reducing the banks overall loss. Versus a homeowner that does not and allows the home to foreclose.

Now let's all be realistic and remember that no matter what our personal thoughts on loan modifications are that there are some great resources for that as well.

So network with professionals and create alliances that will support the best interest of the home owner and not your pocket book.

Introduction of Home Affordable Foreclosure Alternatives (HAFA)

I would love to share my thought on this new 43 page program. Wonderful the administration has a program approved to help home owners. Great for homeowners not so great for banks. The key word in the documentation is 'elective'. This program is not mandatory for the banks.

There is really no incentive in the new program for the bank. The mere offering of $1000 incentive to the bank to complete the sale won't create a blip on their screen. I truly do not see this having any impact on how we as agents are currently helping our neighbors in need; well except for the fact that we need to educate our home owners on all of this.

The program officially starts in April 2010 and requires the 'participating' bank release the deficiency. In my state of Virginia they do retain the right to collect the deficient balance. I see no reason any bank would waive this right for a $1000 incentive, unless the deficiency value was very low. Add to this anyone with a 2nd lien and forget it. The program only allows for $3000 to them on the HUD and then the $1000 incentive. And they too would have to release the deficiency. Umm, I don't think so. If you are actively negotiating short sales in my market you already know that loans generated from 2006 or newer almost all have mortgage insurance. The second lien would in fact be better off allowing the foreclosure in order to improve their bottom line.

According to the program any bank using the 'Making Home Affordable Program' that is unable to approve the home owner for a loan modification then has 30 days to finalize a listing price for the sale and must follow the new HAFA program. The weak link in all that will be the second lien holder as most often they will not be participating in a loan modification at the time, nor using the Making Home Affordable Program.

Also did everyone conveniently forget about contract law? I am not an attorney but recently I was reminded that all the good intentions of this does not wipe out the contract law the mortgage industry and investors are relying on to back their notes.

So don't panic if you are a Real Estate Agent as it most likely will have little impact for now. As for home owners I hate to say it but it's just a bunch of smoke and mirrors. Sure some will be helped by the new system but the way it is written now it falls short of having any significant incentive to drive the banks to jump on board. Sounds great but unlikely to help us much at all.

Download the 43 page Home Affordable Foreclosure Alternatives (HAFA) document here.

Bank of America Short Sales - Smarter than a 5th Grader?

This post falls into the 'Are you smarter than a 5th grader' category. Here are three recent examples of a broken system that needs some attention. I am certain the higher ups truly want a solution of sorts to protect their bottom line.


But the painful truth is the system many of the banks are following just blows. I know that sounds so unprofessional to say it that way but all too often lately the arrogance, ignorance and complete disregard for the fact that we are working with people, families and some in such despair they have lost all hope.

Example 1: Recently after months of negotiating, files being lost by the bank, resent, lost again, BPOs (Broker Price Opinions) ordered multiple times we finally get an approval letter delivered to us from the bank. It allowed exactly 6 business days to close the sale. Absolutely impossible so we tried contacting them immediately assuming it was an error. For the days prior to the expiration of their short approval the negotiator never responded to our voice or emails. The day after it expired finally someone responds. They tell us the file was closed due to non-compliance since we missed the close date they required and we would have to resubmit all over again. When we noted we made over 15 calls and emails to them about this the negotiator said sorry that is just the way it is.

Example 2: Another file in review almost 7 months after no responses to any of our requests for updates we finally get an email from the assigned negotiator. She asks for changes to the offer and terms that require we speak with all parties to the contract. The rub here is that after 7 months of our waiting and their ignoring our requests for updates the negotiator states 'you have 72 hours to respond and 'agree' or the file will be closed'. Now how at all is that productive? I understand they need to manage turnaround times but it is completely unacceptable for them to take over 7 months to respond and then expect everyone else to move at light speed.

Example 3: The bank responds to our offer and requests an additional $5,000. We ask if the buyer will agree to pay $5,000 more and the appraisal allows it will they accept that? The negotiators response was that she did not believe it was the buyer's responsibility to make up the short sale shortfall and she would not allow it. Our response to her is the bottom line should be the only important factor here. The seller does not have the cash and the buyer is willing so what is the problem? She holds her ground but now she is no longer looking at the bottom line in my opinion she is allowing her ego into the picture. The truth is the bottom line should be the only focus not that some 'point' be made by pushing on the seller when it's not needed.

All three of these examples are from Bank of America. I believe if the supervisors had any real understanding of what was going on they would be more available to help solve these. But sadly we only see these issues on the rise. Good luck out there and be patient as often that patience will get you through and help you help the homeowner(s).

Negotiating Short Sales: Class 200

There are some gentle nuances to negotiating short sales that I would like to share with everyone now. These negotiating tactics are basic in principle but powerful when used consistently and correctly. First is related to negotiating the 'Terms' and the second related to negotiating the 'Approval'.

Negotiating the TERMS.
As listing agents or short sale negotiators we all tend to have a very common trait and that is wanting to control everything from the start. Well let me tell you when negotiating there are times where that will work against you. For example do not waste your time negotiating the 'Terms' of the short sale when the negotiator first speaks with you. You know this conversation, "Our guidelines will only allow for 4% commission, we cannot allow Admin or Inspection Fees, etc.". Most agents stand up right away and pound their proverbial chest stating I want 6% and well you know the rest. This is not really the time to set up an adversarial relationship and there is nothing in writing in which any party can defend. So let that initial rhetoric from the negotiator slide past you and wait to negotiate the 'Terms' when you have an approval letter in hand.

Negotiating the APPROVAL LETTER.
If you do have issues of contention with the approval letter avoid confronting them as the 'Realtor'. Come at them as though you are a 3rd party negotiator and make polite understanding references to the issues. Something like, 'yes, I completely understand and agree that for the bank to do better on the offer that a reduction to 5% commission is needed and your 'guidelines'. The road block I am hitting from my side is that the seller's attorney has stated the Seller cannot move forward at 5% since they would then have to pay the 1% difference out of their pocket. Is there anything we can do to move this forward?"

Working from a 3rd party approach to negotiating the approval letter reduces the confrontation you often face when the negotiator feels you and he/she are battling this through.

Chase Wants 20% as the 2nd Lien Holder

I wanted to use this post to share an example of how we all as Realtors can easily get caught up with what we think are changes across the board with some of the banks we are negotiating with short sales.

Recently while negotiating a file with 2 liens, Chase sat as the 2nd lien holder. Imagine my complete shock when the Chase negotiator stated they wanted no less than 20% of their balance to release the lien. He went on to say that anything less would close the file. I've heard that 'we'll close the file' remark more than enough to know it is 90% smoke and 100% crap. Sure they might at some point close a file but who the heck cares. A closed or denied file is just permission to step pasted them to someone above them.

But the point of this post is that unchecked and without previous experience of being lied to and manhandled by a negotiator I may have believed that 'oh my, Chase needs 20% to clear the second'! After doing some homework and calling to some passed negotiators I've worked with they confirmed that 10% will usually clear the lien and in tight offers they will accept as low as 5%. Additionally I found that my current file was in Tampa and that the negotiation team boasts the highest recovery rate of the Chase teams out there. So just in case you catch yourself in a similar scenario just remember when in doubt revert to the numbers. Is your offer better than the amount they would see if the property forecloses?

By the way when you hear them say it's okay if it goes to foreclosure that they have 'other means' to collect. Please don't panic or fall into this trap. There is nothing secret to worry about. They are most often referring to their right in certain states to go after the deficiency after foreclosure.

BankUnited Sold, Another one Bites the Dust!

And the hits just keep on coming. BankUnited was SOLD to a private equity firm. Not a huge shocker I guess. Whether you were keeping an eye on BankUnited themselves or just the banking industry in general, we all know it's not over.

So how does all of this and events like this effect us Short Sale Agents day to day? Well as I think of most of my short sale listing appointments the first thing that comes to my mind are the home owners in stress with loans from a bank like BankUnited. To most it is a big unknown and a huge addition to their stress. For now I don't see these sales having a huge impact on my short sale clients or even the negotiations. But I would suggest you do your best to stay current on these events as they will most likely pop up as questions as you meet new clients.

Avoid the knee-jerk reaction to give answers you don't have. Too many of us Realtors really want to help but completely forget about the legal ramifications to dispensing advice on subject matter outside of our real estate licenses. If you have a client stressed about their bank going through a similar issue, encourage them to contact the bank or do a bit of research themselves. They'll get the information they need and you get to keep your license for one more year. :o)

For more information on BankUnited's sale check out the article on Bloomberg.com at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azOHOtxuEFJY

Second Lien Wants More Money!

Month by month the issues related to negotiating short sales grow and evolve. One month it all seems to make sense and then crazy stuff starts to happen. So what can you do to get your deal through when you are having some challenges with the 2nd lien?

It all goes back to setting your seller expectations. Over a year ago most 2nd liens wanted at least 20% to release the lien. Six months ago they seemed to work through with 10% or less and now we are seeing a turn back towards the 20%. And the 1st lien of course only wants them to get $2k for everything. I always like to fight and negotiate the heck out of the deal. But there are times when, as the negotiator/Realtor, that it might make sense to let the deal move to close even if it might cost someone in the transaction some money. (I don't even like typing this, feels like giving in but . . . sometimes it will make more sense based on your seller's needs and desires).

We solve this problem by setting our seller's expectations. During our listing appointments we advise the seller that we will work towards a closing that will not require them to bring any money to the closing table. We explain how hard we work towards this end but that they need to prepare for the possibility from the start that some money may be needed. I always suggest they try to save 3% of what the sales price might be. This seems to be the magic number for us at least. During our most difficult negotiations with the 2nd lien this amount would almost always make up the difference the 2nd lien wants with what the 1st lien is going to give them.

As for someone suggesting 'well the problem is they have no money' I suggest you stop assuming some of this. If an owner knows from day 1 they might need a small amount of money and for 3% of the sales price they can clear a hefty debt from their backs, it all starts to make sense to them. And given enough time most owners can find a solution to getting some of that money.

But still fight the fight, nothing is cooler when all seems lost and you pull it all out because of your great negotiating skills, contract knowledge, sparkling wit and amazingly good looks ;-)

Bankruptcy, Loan Modification, Short Sale

It's a bit like Paper-Rock-Scissors. You need to keep in mind what one does to the other if you are going to work with short sales. Initiating one might just stop the other.

So here's what I suggest you keep in mind; Bankruptcy trumps both Loan Modification and Short Sale and Loan Modification trumps Short Sale. Simply put if you get one of these in motions it may impact something else you are trying to do so when in doubt - check it out. For example most banks in the process of reviewing a short sale will stop and cancel the short sale if they receive a loan modification request from your seller. This can be a huge problem if your seller is not communicating with you and they initiate a Loan Modification request while you are working your butt off on a short sale.

It can be different from bank to bank so play it safe. Make sure you instruct your seller to communicate with you prior to doing something that contradicts your actions. But be very careful here not to step in the middle and tell them to stop all together. You might be walking yourself towards a lawsuit by telling them not to do something because it potentially conflicts with 'your' preferences.

Arrogant SOB & "Guidelines"

Going for a little shock value with the title of the post but I'm a bit rev'd up today. It's very frustrating to deal with some of these negotiators. The urge to attack them verbally, with phrases like 'you're rubber and I'm glue . . .' come to mind.

It's an absolute trial of your Zen mastery skills communicating with some negotiators. But when all is said and done they are just trying to do their job. Right? Umm, sure, let's call it that for now. But the ignorance of some of them is beyond my imagination. But no matter, it's only self-serving to attack back. But don't get pushed around either.

You might find that some of them 'threaten' to close the file while you are trying to work the deal. They will tell you things like 'well the investor guidelines' or 'the bank guidelines' won't allow for it. Don't panic, let them and then escalate it around them. Keep in mind any pending auction/foreclosure date. But if you have some room then their denial is your go ahead. The tough part is keeping the other parties in the transaction calm while you push this through. The knee-jerk reaction is to give in and accept their bully tactics, asking for reduced commissions, no seller concessions and anything else completely out of line. They are counting on this from you. Closing the file is no big deal at all. Try to look at it as the next step towards your approval.

Why Would any Bank Deny a Short Sale?

Let's get past the obvious one first here. If the initial offer is way too low then forget about it. Some banks don't counter back at all in these situations. Well maybe with a 'give us a better offer' but often with no details on the actual price the want. There are always exceptions but be prepared for some crazy responses.

A big issue is the second. We all understand or believe that if the 2nd lien holder doesn't take the measly pennies offered from the first they won't get a dime. So as Realtors we pound our all-knowing chests and spout out 'you're crazy it's this or nothing'. Well not if the 2nd lien has purchased their own PMI (Private Mortgage Insurance). Some lenders have done this on their loans. So if you are dealing with a second trust that is fighting hard, not necessarily a HELOC, then ask the question - Do you have PMI on this? If they say yes you can see why they are sticking to their guns. If it forecloses they will still get 20% back from the PMI insurer.

If this is the case and the 1st lien holder is holding tight on the amount then get on the phone/fax/email and explain the situation and that if they don't allow the amount to the 2nd they are looking for that they will not release the lien for sale.

FHA Short Sales

Short sales that are FHA insured. If you have not had one yet you will soon. These are handled a bit differently and I feel the process has been a good one over all. There is a system in place and it must be followed.

A few highlights . . .

- There are required documents, use them (see links below).
Submission of Form HUD-90036 and the subsequent approval supplied on form HUD-90045 are required prior to listing the home for sale. Form HUD-90036 is completed and signed by the seller and submitted to HUD through the lender servicing the loan.

- For the first 30 days of marketing, mortgagees may only approve offers that will result in a minimum net sale proceeds of 88% of the "as-is" appraised Fair Market Value (FMV).

- During the next 30 days of marketing, mortgagees may only approve offers that will result in minimum net sale proceeds of 86% of the "as-is" appraised FMV.

- For the duration of the marketing period (60 days), mortgagees may only approve offers that will result in minimum net sale proceeds of 84% of the "as-is" appraised FMV.

-HUD will not allow a buyer to inflate the purchase price to cover seller concessions requested.

- $1000 potential seller gift if they contract and close within 90-days of listing.


HUD's Information Page oh FHA Short Sales (PFS - Pre-Foreclosures Sales)
http://www.hud.gov/offices/hsg/sfh/nsc/faqpfs.cfm

HUD Forms
Mortgagee Letter 2008-43 (MS Word doc file)

Hud 90035 Information Sheet

Hud 90036 Application to Participate

Hud 90038 Homeownership Counseling

Hud 90041 Request for Variance

Hud 90045 Approval to Participate

Hud 90051 Sales Contract Review

Hud 90052 Closing Worksheet


And an FYI - All HUD Forms are listed and can be downloaded here!

Overall they system is defined and workable. I like it because the lender MUST follow the HUD requirements and that reduces some of the bulls@#t that some of them seem to like to stir up sometimes.

What is a realistic price to the bank? Do they counteroffer?

Typically the banks are looking for a percentage of the BPO value as the realistic price. Fine if the BPO is in line, not so great when you get a bad BPO returned.

As a buyer agent I would think about this especially if the home your buyer is interested in is priced way under market value. If you have an investor that wants to steal a deal as it were and ride it out hoping for positive results then I think that is okay coming in low. But if you have a buyer that would like to occupy and the list price is way off the market value it is best to consider getting the offer in line. I suggest an offer around 92-95% of market value has a better chance of being accepted. The reason is that at a 95% offer and after most concessions and commissions it will bring the NET to the bank in the 86-88% range and that should work well. But even as I post this these numbers a sliding down a bit.

So if your buyer/occupant wants to test the waters with a low offer that is their option. If I were their buyer agent I would like to know they would come up as needed to seal the deal based on any sticking points. After all we are not in the business of writing offers for the mere practice of it.

Often a doesn’t typically counter back the offers on price the way you would think. If the offer is unrealistic they just deny it more often than not. This is another area where the competence of the listing agent or negotiator is important. A decent negotiator/listing agent after getting a ‘no’ will push back trying to get something everyone can work with. At times this might mean escalating the issue past the loss mitigator currently working the file. Too many agents hear ‘No’, ask why to the initial loss mitigator only to hit a wall. They hit the wall because that loss mitigator often has no authority to go beyond the guidelines in front of them. I am seeing this start to change a little now for the better but not across the board yet.

In reference to something like a counter the bank(s) might come back with limitations to the initial offer. For example stating that the most in closing cost fees they will pay is 3%. So if your buyer asked for 3% concessions any additional fees above that the bank is stating they don’t want to pay. This one is scary because if the listing agent doesn’t read that letter correctly and truly understand what they are asking you could go all the way through closing to find out the amount to the bank was wrong based on their paying more than agreed in the approval letter.

Typical counters from the first:
• Commissions (of course)(but don't do it)
• Total closing costs including the seller concession request
• Amount they will give to the 2nd lien, if one exists
• Paying property taxes
• Paying outstanding HOA fees or for resale documents
• Paying recording or other miscellaneous settlement company fees.

Typical counters from the second:
• How much they will accept to release the lien
---Often more than the 1st will pay
• Commissions again
---This one is just stupid to me as is does not affect their bottom line as any reduction in commissions would be paid to the 1st.

In response to these counters the money needed to meet whatever is finally negotiated can come from a few areas
• The buyer
---Increasing the sales price
---Reducing closing cost concession requests
• The seller
---Bringing money to the table to make of the difference
---Selecting to sign a promissory note as needed to appease one or both of the banks. Not typically an attractive options to the seller and sometimes not something the bank might want (strange, I know).
• The Realtors - But hopefully you do not allow this to be an option!

So Who is My Client? The Bank or Home Owner?

For many of us we know the answer to the question who is our client during a short sale. But honestly it is a good question to answer for those who have not stopped to ask the same question.

Simply put the home owner and not the bank is your client during a short sale listing. All things being equal the only difference is the need to get the banks approval for the agreed sales price. Will they accept a lower payoff to release the lien? You will most likely see this noted in other posts but remember this as you stay tuned into your fiduciary responsibilities.

Fannie Mae - No Negotiation of Preforeclosure Sales Commission

Great news shared from our state association today that affects all of us across the U.S. negotiating short sales with Fannie Mae.

Here is the article (abbreviated) sent out to us from VAR (Virginia Association of Realtors). We heard about this 2 weeks ago but seeing it 'in print' as it were is very comforting.

Fannie has now announced that effective March 1, 2009, the approval and closing of short sales will not be conditioned on the willingness of the listing firm to alter its fee arrangement with the borrower, as long as the total commission does not exceed 6%. The official guideline is set out below.

No Negotiation of Preforeclosure Sales Commission

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers
Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in the aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

Here is a link to the new Fannie Mae guidelines (18 KB PDF download) and the page at eFannieMae.com which shared this news.

Submitting a Winning HUD-1!

The most important tool in your negotiating arsenal is your HUD-1. Some agents send in a Net Sheet that is 'estimating' the numbers and the dollars the bank will get. There are some problems with this in my opinion.

If you submit a Net Sheet or a loosely calculated estimate of what the bank will net with your short sale it could become an embarrassing situation when the bank approves this after some long negotiations only to find out the number was wrong and low. If you plan on doing short sales on a regular basis then you need a good relationship with a reliable attorney/closing company to pull your title and get you the most accurate HUD-1 from the start.

Here are the keys to a winning HUD-1 for submission to the bank.
- Make certain taxes and fees that may be due are calculated out months down the road to a date you think it will actually close. Often this date is 3 or 4 months out from the creation of the HUD.

- Have the title search run to find any additional liens. Too often a client has told me there were no liens and we find one anyway. Add this to the HUD and estimate the cost to close it 3 or 4 months down the road when the sale might close.

- Include HOA/Condo fees and find out if your client is also behind on these. If they are find out how far behind and again add additional months as needed to match your estimated close date.

- Separate HUD's for a 1st Lien Holder and the 2nd Lien Holder if two loans with separate banks. The HUD to the first shows a larger payoff to the 2nd, while the HUD to the 2nd shows a low offer to them (the 2nd). Both banks will almost always say push the other way. The 1st will say they don't want the 2nd to get that much and the 1st will ask for more. Preparing the separate HUDs sets you up for success and meeting in the middle.

- Get your attorney/title company paid. Know from the start that many banks won't pay recording fees and overnight fees, things of that nature. Suggest from the start that your attorney roll their fees together (where allowed) into their settlement/closing fee on line #1101.

- Also you need to know that it is very hard to get the banks pay for home warranties or inspections. So if they need to be paid either the buyer or the seller will need to pay for these so try to keep them off of the seller side of the HUD if you can.

I hope this will help you get that much closer to easier negotiations. As always if you have questions or concerns talk with YOUR broker. If you are your broker then, umm . . . ? :-)

But the Bank Told Me . . .

The bank negotiators job is to make certain the short sale offer fits their general guidelines for acceptance AND to get as much money as possible for the bank. Just as you are setting expectations for your seller and the buyer agent in your transaction the Bank Negotiator has some tactics as well.

Whether it is at the start of one of your submissions or during it you might hear a negotiator tell you something like 'and remember we won't accept short sales with over X% commission'. They might make a statement about the seller needing to pay 'X-dollars' for the short sale to be reviewed. Don't waiver from your path, send the offer over as you have it without the seller bringing money and without reducing your commission to match their "requirement". If they contact you after stating you need to make changes to the offer to match those requirements I strongly suggest that you do what you can do to get it reviewed as is. Use your negotiating skills and if needed escalate the offer to someone else.

If your offer is strong enough and close to Fair Market Value (FMV) then there is no solid rationale for the bank not approving your offer. The issue here is YOU believing and understanding this.

I guess what I want you to take from this post is that you work for your seller and not the bank. So don't make the mistake of letting the bank 'tell' you anything that could mean money out of your client's pocket.

Negotiate your Contract

I know it can be hard when you are trying to get an offer an the clock is ticking loudly behind you with a pending auction date. Don't let your sense of urgency override your responsibility to your seller.

I see so many Realtors uncomfortable with advising the seller to counter the offer made by the buyer on their short sale listing. In the end it is your seller's choice but don't scare them away from the process of negotiating the price and/or terms of the offer. Remember that a lower offer approved by the seller's bank may potentially mean a larger exposure to the balance of the debt if that same bank decides to come after the owner for the balance at a later date.

Know your local contract!

Even without the existence of short sales it is important as Realtors to know our contract well if we are going to do a good job. Not that I can give it more importance due to short sales but not knowing your contract can put everyone in a bad place. Short sales take longer giving more opportunity for a loosely negotiated contact to give way to some very big problems.

We recently had a long and very drawn out negotiation with Countrywide (1st) and Wachovia (2nd). Actually both banks were fine to deal with, very professional during the transaction and giving us approval to close. As we got closer to closing and per our local contract we kept pushing the buyer agent for the release of the financing and appraisal contingencies. We were in a tough spot because our only course of action if they say no or keep delaying it is to void the offer, which we did not want to do for obvious reasons.

The morning of closing we get an 'email' from the buyer agent stating the buyer is unable to come to closing and the offer is void. < < insert cold sweats and panic heart rate here > > But because we know our contract and my exceptional negotiator, Jacqueline, properly documented the agreed closing date each time it was moved or delayed we were okay. You see our local contract automatically removes all contingencies at midnight prior to the closing date. So her having documented and having all parties sign and acknowledge the date we were able to protect our client. If we were lazy about all of it and left it as a verbal then we would have been in a bad spot for our seller. Long story even longer after about a week delay from the original date the buyer did come to the table and sign the papers to purchase. << Thanks to Jacqueline for doing a great job and saving a $360k sale but more importantly helping our seller avoid foreclosure! >>

Know your contract, document everything as needed and never take bad news as the end. There is always an answer if you stay calm and think it through. Okay sometimes things just crap out on you. But more often than not difficult and seemingly impossible situations can be overcome by stepping back and thinking it through.

Best of luck!

Submitting Authorization Forms versus your Short Sale Package

If you are newer to short sales all of this may seem overwhelming. So I'd like to share some basic information you will need to know when working with short sales. This post talks about fax numbers and knowing the difference between the numbers some banks have.

You will learn quickly that tracking numbers down and getting things to the right locations can be a challenge at the start. You need to know that many, not all, but many banks have separate fax numbers for where you send the authorization form versus where you send the actual short sale package. So knowing this you want to make sure to ask very specific questions to the banks when gathering this information. Ask if the authorization form you need to send in goes to the same number as the short sale package.

Do yourself a favor and make sure to start collecting information on each bank and negotiator you work with. This is a great resource as your business grows.

Pricing Your Short Sale to Sell

It will be important to have a good understanding of pricing strategies to be successful with your short sales. The price will need to be competitive with the market to generate an offer but not so low that the bank will say no to the offer during review.

An additional concern your client should have about pricing is that the lower the price is that they accept and do get approved the larger their exposure is on the potential deficiency balance the bank may try to come after later. If on the other hand the bank chooses to write of the debt and 1099 your client then the exposure to the seller would be to potentially a larger total tax implication. So you have quite a balancing act to pay attention to here.

Before I go further remember you along with your seller set the pricing and strategy NOT THE BANK! I've heard agents make comments like 'well the bank told me to price at X-dollars'. Please remember you, not the bank, are the local professional. You, not the bank, are familiar with what is going on in your local market. Your fiduciary responsibilities are with your seller and not the bank(s) needing to approve the final offer.

The rest of this is all just my opinion / experience to date. What works today may not work tomorrow or may not be the best approach for your market so make sure to network with your area Short Sale Realtors and see what's working best.

BPO Value - 90%
From our closings and speaking with Short Sale Realtors across the country the general observation is that if you can get an offer price at 90% of the BPO value that the deal should get approved. That doesn't mean a number under that won't fly but it can be a nice reference point if you are just starting in all of this.

Setting your price
Use your knowledge here. Price to sell not sit on the market. Depending on your seller's situation and foreclosure timeline your approach will be different.

Price Changes
Don't play around here because you need to sell and I would suggest a price adjustment every 2 weeks until you find an offer you can work with. Set a strategy with your seller from the start.

Short Sale Excel Spreadsheet

I found this a few months back and while it is not perfect for today's short sale environment it is still pretty cool and with some minor tweaks you will find the cover letters alone a nice resource.

For $97, well worth the cover letter alone and really all I used this for initially it is pretty cool. You enter some data about your short sale on the 'Input' page and it populates the data into other cover letters, etcetera in the excel workbook. For obvious reasons the owner has password protected the file. At times I find I need to edit the letter(s) and there is a way to do that to.

First if you are interested you can view his YouTube sale video and then purchase this for yourself. Just go to ShortSaleDemo.com

If you find like I do that you need to edit/tweak the letters after they are created just print the file to a PDF file and then use NitroPDF to edit the PDF file directly. If you need NitroPDF it's about $80-100 depending on where you get it. Try buying NitroPDF here.

Sample Approval Letters

Here are a few links to some sample short sale approval letters we've had. They might make interesting reading you haven't seen any before. If you have seen a few of these then it's all old school.

Make certain you read and re-read the approval letters when they come in to you. Are they removing the Lien AND the debt or just the lien? Is the date they have on the letter the latest date they will allow for closing or is it in fact the date they want the money into their hands? That last one could really cause a problem if you are not keeping a close eye on things. Check out some of these sample letters and get a feel for what might be coming your way.

It would be important to note at this point that most of the banks will not change the general text/wording of their letters. The response I hear often is 'The lawyers have reviewed and approved this wording and we are not allow to add to or take away from it'.

Sample Short Sale Approval Letters
BB& T Sample	Bank of America Sample	Countrywide Sample
HSBC Sample	National City Bank Sample	Saxon Mortgage Services Sample

Buyer Agents, Interviewing the Listing Agent

There was a time when you could easily avoid short sales and in some areas you still can. But what do you do when the home your buyer really wants is a short sale? Or they've written on and lost multiple offers on REO properties? Short sales are a great opportunity for your buyer if they have some time. Typically there is not a lot of competition and very often the home shows better then the competing REO. So what questions should a buyer agent ask the listing agent?

Before writing an offer you really need to get a feel for the competence of the listing agent to get this sale to close.

Property specific questions:
-How many loans are there?
-If two, are they with the same or different lenders?
-If two is the second one a HELOC? HELOCs fight much harder to get a bigger chunk back, often 20%. That 20% can be a deal breaker at times if your listing agent is a poor negotiator and the 1st lender doesn't want to provide it to the 2nd.
-Has this agent closed any previous short sales with the bank(s) in question?
-Have any other offers been received that may have started the process already? Remember many banks will not start the short sale negotiation until an offer to purchase is in hand.
-How far behind are they with their payments? You will need to be familiar with your states foreclosure process and laws to better understand how their timeline may
-Has the NOD (Notice of Default) been filed yet?
-If they are 3 or more months behind with an NOD has the bank agreed or implied they will hold off the foreclosure if an offer is received? Many agents won't have this answer initially but if they call to the bank they can get a feel for it.

Agent Specific Questions:
-Have they closed previous short sales?
-If yes, what is their closing rate/percentage? How many have they put under contract and how many of those have gone to closing?
-Do they negotiate their own deals or use a third party negotiator? I have mixed feeling on using a third party but either way you want to know who is negotiating it.
-If you have experience and wish to ask if they would allow you to negotiate the deal.
-How successful are they are at keeping your full commission as listed in the MLS?
-How often will they update you?
-What is their follow up frequency with the bank? If they tell you they submit and wait to hear back when the bank is done pass on this one.
-Do they place the home 'Under Contract' in the MLS or leave it active to generate additional offers? This may vary between markets but in ours the buyer and seller are ratified when they sign off on the deal. And based on that the home comes off of the market. The banks approving the deal is only a contingency. I know if I were the buyer agent I would not want my buyer writing on a home that the seller will still be shopping for offers on.
-Hell, why not ask them for the most recent buyer agents they have closed short sales with and call them for some feedback.
-If they receive multiple offers do they send them all to the bank or just one? Again consult YOUR broker but I know when I speak with negotiators from the banks about this they laugh. They say when multiple offers come over they often know the Realtor has no idea what they are doing. The statement I heard was 'It's not also my job to pick the offer. That's what the Seller and Realtor are supposed to be doing.' One negotiator stated when she gets multiple offers she pushes that file to the side and to the bottom. She said she also knows from experience that agent will most likely give up all of the commission to get the deal to close. So I say again, check with your broker about how there should be handled in your area.

I know this is a huge list of questions. You may not need to ask them all but make certain you have the comfort that this listing agent has a handle on the process and can help get this to close.

Mortgage Debt Relief Act

Quiet down out there! Just typing the title to this post I could almost hear the clamoring of questions. What the heck is it? How does this apply to my seller? Why is reading through the bail out documentation almost easier to understand? I won't bother to try and say it better. I'm going to direct you right to the source on this one.

For the best details jump on over the the IRS web site. The page is located at http://www.irs.gov/individuals/article/0,,id=179414,00.html and has links to forms and publications to help clear up any questions you might have.

Remember to send your clients to a CPA with questions. If they plan on using the 'tax professional' sitting in their local Giant Supermarket they will end up with some bad information but some really great fruit! :)

How to Influence the BPO Value

The critical nature of the BPO and its value to the success of your short sale cannot be overlooked. The BPO can make or break your deal. Knowing this we need to do what we can to 'help' that value come within a range acceptable for your short sale to be approved. This all asumes that you priced the home reasonably to start.

What I am going to suggest is not unethical or improper by any means. In my humble opinion it all falls under your fiduciary responsibilities to your client, the owner of the home (not the bank).

Any short sale offer you send over should contain a one page document signed by your owner giving signed permission for the Interior BPO AND noting you as the interior contact to gain access. If you don't have one of these already just take a standard 3rd Party Authorization form that you used to allow the bank to speak with you about your client's loan. Edit that to be your new 'Interior BPO Access' form.

When you get the call from the BPO agent be there when they arrive for the Interior BPO. Bring your comparables that support your price, if repairs are needed then bring quotes and information on those repairs. Detail anything you might feel would help the agent. Remember to be polite and almost casual about it all. You know 'oh, I forgot but I gathered a copy of the comparables we used when taking the current offer, I thought they might be helpful to you'. Some agents may be offended and ignore your offering. But many will be thankful for the details hopefully bring the BPO value in range of where you need it to be.

Many of us have done hundreds if not thousands of BPOs ourselves in the last year alone. Bring this knowledge into play when thinking about the BPO value. Knowing the systems these companies use and the software we are aware that many of these systems throw out warning messages when the final suggested value is not in range with the current active list price for the subject property. Knowing this our standard practice after ratifying an offer is we change the list price in the MLS to be slightly under our contract price. We also know that many agents are just cranking out these BPOs and it's their main form of income. Often when the error message pops up too many won't go back to find new comparables. Often the easiest thing for them to due is adjust their final BPO values they entered to fall in line with the list price. So if your offer price is below your list price by anything significant this can be a big problem for you. So after we have an offer and if it is below our list price we adjust the price in the MLS to match or be slightly lower than the offer price.

Caution, due this properly and in writing. I always bring a Listing Addendum with me to every short sale contract signing. I will have them sign this BEFORE the contract. If ever asked I can state comfortably that we changed the price prior to ratifying the offer.

As always check your local regulations and speak with your broker about this practice. Remember my Disclaimer. :)

What's the Magic Number When it Comes to the BPOs

There is a lot to consider related to the BPO (Broker Price Opinion) and how it can slow your deal, get your deal approved or send you crying to your mother because it ruins your deal. One of the most confusing parts of the BPO dance is how your offer price and the BPO compare to each other.

What value of the BPO can my offer be to still get an approval from the lender? This depends on a lot of factors but in general if your offer is at least 90% of the BPO value it should get approved without problems.

Did I read that right because I had deals at that value range that were denied? Remember one very important thing about negotiating, okay two. First know who you are negotiating with and what their real ability is to approve your deal. But most important is to remember when negotiating 'NO' just means you didn't ask for what you wanted the right way or to the right person.

So how do I change that 'NO' to a 'Hell Yes'? Escalate your offer to a higher power. Do it professionally, politely and detail your numbers. What is often most important is 1) What is the value of the home (BPO $), 2) What is the Offer Price, 3) What is the amount owed on the loan to the bank and 4) What are they getting from this offer?

How do should I escalate my offer? Check back soon for my post on Escalating your Short Sale offer. Once it is here you'll see 'Escalation' in the Topic Search at the top-left of the page.

The Lender Sent a Letter to My Client!

Often during negotiations the issue of commissions comes up. Far too many Realtors fold under the pressure. Why would you allow the bank to keep your money when you are working so hard? I've heard of agents standing up to the lender on commissions only to have the lender send a denial letter to their clients claiming it was denied due to the Realtor not reducing their commission.

We'll talk later about us all getting in a bus and driving to this loss mitigator's office but for now let's talk about this potential event. I suggest, as I did in another post, that if you hit a sticking point on commission that you get everything else in the offer approved. From here you can try a few different approaches.

The first option happens after the loss mitigator approves everything except your commission. At this point and prior to the approval lender being sent out you could ask for a supervisor and plead your case. I have had success with this approach on many occasions. Speaking with the supervisor/senior loss mitigator I'll explain that our team being involved increased the banks bottom line by much more than the 1 or 2% they are trying to capture from me. I detail our experience and the fact that if another Realtor had sold this they would have lost much more to their bottom line. You could add details that fit your situation and beliefs for your value to the transaction. But believe it or not this works very often.

The second option. I did this only once and it worked very well but has not been done enough to say it is a sure fire plan. First always set your seller's expectations that they should be trying to save some money in case it is needed to fully satisfy the lender's approval requirements. That would also encompass a shortage in commissions. But knowing the bank might try some dirty little approach like this let your seller know that if the bank does challenge the total commissions that either the seller can pay the difference or you can play hardball with the bank.

If your seller's know the game plan and options then great. If a loss mitigator suggests they will send a letter to your seller tell them you understand. Explain that you have educated your seller on the potential outcome and that in fact, you would like the loss mitigator to send you the letter first and you will even sign it to acknowledge the letter prior to it going to your seller. This completely caught her off guard and turned things around right away. Initially she stated some money is better than none. I responded as you might guess stating that was not in fact true. As a professional I understand at times it is important to cut my losses. I explained while I would hate to see my seller void the offer due to this issue if they do not have the money to pay me and you will not then unfortunately it may fail and go to foreclosure. We got off of the phone, she called back in two hours with a full approval.

Now talk with your broker about this last approach and if this causes any potential fiduciary issues on your end. By setting all of my seller's expectations and knowing what they were comfortable with (AND having them sign off on that) I felt very comfortable with this approach.

For another option read the article 'What Happened to My Commission Check?'

By the way, if they deny it and send a letter like this to your seller, I would suggest you escalate the short sale immediately. The fact remains that the bank wants the most money and if your offer is close to Fair Market Value and will truly net the bank more than a foreclosure a senior loss mitigator will see this and get the approval done.

Tagging All of Your Documents

The smartest thing you can do prior to submitting your short sale package is to tag every page with the loan number, owners name(s) and property address. But who wants to hand write this on 100+ pages? Don't worry there is an easier way. For about $100 you can purchase
Nitro PDF Professional.
This program is great and for the money it is the best thing out there. You could buy this or buy Adobe Professional for about 6-times the price.

This software let's you insert, delete, reorganize and even edit your PDF files. Better yet it allows you to insert header/footer text. We use this feature to insert the Loan Number, Owner Name(s) and Property Address into each and every page in about 1 minute. For reference we insert ours as a footer that is .2 from the bottom and .15 from the left. We find this location is typically free of other type allowing for a clean insert that is easy to read.

Good luck!

Your Stacking Order Matters

When putting your offer together it is very important that you put a clean and detailed package together. This includes a good cover letter, a defined stacking order for your documents as well as properly tagging each and every sheet in your package with the Loan Number, Owner Name(s) and Property Address. Of course you need to have ALL of the required documents as well. Don't even think of sending most of the documents with a note that the 'others' will follow later.

I suggest creating one of your cover letters to define the stacking order you used when sending over your package. This will make it much easier for the loss mitigation person to locate what they need quickly.

Here is a sample order you may wish to follow.

• Fax Cover Letter
• A copy of this Stacking Order Printed onto One Page for Reference.

Borrower’s Financials

• Client Information Summary Page
• Hardship Letter
• Financial Statement
• Copies of last 2 months Pay Stubs or letter of explanation
• Copies of last 2 months Bank Statement or letter of explanation>
• Copies of last 2 Year Federal Tax Returns or letter of explanation
• Authorization & Release Form

Property Information

• CMA or BPO - Create your own to send along with the initial package.
• Cost of Repairs (if needed)
• Residential listing agreement
• HUD-1
• Purchase Agreement
• MLS Listing

As I mentioned prior I suggest faxing the package and if you don't wish to shell out hundreds of dollars for Adobe Professional check out
Nitro PDF Professional it's what we use currently and it's affordable and easy to use. But make sure you read through the manual a bit because it does a lot more than you might be aware of initially.

Simplify Your Short Sale Faxing!

This is a short post on getting your offers over to the banks. Often the short sale package can have more pages than you are able to fax comfortably using a standard fax machine. Some of our recent packages have had 150+ pages. We have been using an efax service with great success.

Simplify Your Short Sale Faxing. The reason we like this is it lets us send it over and more often than not it goes over the first time. Imagine sending these pages through your company fax or home fax. You would have to stay and monitor the fax while it went through and it could take up to an hour. If it is also your office/home line then forget that option all together.

A couple of quick suggestions when faxing. Always call the fax number just prior to faxing and make certain the line picks up. Many of the efax services will charge you for large, failed faxes due to the amount of resources used to continually re-send the fax. The second suggestion due to how busy the short sale departments are is to try and fax during off hours so you can get through easier.

Currently we use MetroFax because of the cost and fee structure. It is the best one out there that we could find and has been very reliable. Check them out at MetroFax.com

Tax Implications and IRS Form 982

I am not a tax expert so what follows below is only for informational purposes and should be used as a starting point to further investigate the potential tax savings involved. It is absolutely worth your seller's time and money to consult with an expert in these matters as it could save them thousands of dollars.

Is there a way to avoid paying that tax? Possibly. IRS form 982 says, “Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you may exclude the amount of discharged indebtedness from your gross income”. The specific instructions are contained in section 108 of the Internal Revenue Code.

One of the “circumstances” they are referring to is that if you are insolvent before you conduct a short sale then you may be able to “exclude” the forgiven indebtedness (the amount the lender forgave on the loan) from being added to your gross income for that year. Here are some questions you will need to ask an expert:

• Can I avoid paying taxes on the forgiven debt if I was insolvent at the time of the short sale?
• Do I have to file bankruptcy to be considered insolvent?
• If you already used a short sale and paid taxes can you file an amended return and get a refund?
• Does your real estate agent understand any of this?
• Do you have to surrender your property in bankruptcy to be eligible for relief?
• Does a form 982 have to be filed in order to be eligible for tax relief?

These are just a few of the questions that should be asked. But, it may very well be worth it. You can find Form 982 on the IRS web site located at www.irs.gov/pub/irs-pdf/f982.pdf

Tax Implications of Doing a Short Sale

Okay first remember my Disclaimer then read on. :)

IRS IMPLICATIONS OF DOING A SHORT SALE
Many homeowners do not realize that they may be in store for a large tax bill from the IRS after the short sale of their home. Every situation is different and you should absolutely have them contact an accountant or tax advisor before conducting a short sale to determine their potential liability.

After the sale of their home any deficiency, any amount the bank is short, they will have to write-off on their end. To do that properly they will submit a 1099-C to the seller for the balance owed that they were unable to pay back. The IRS may look at this as additional taxable income.

What are the odds that they will have that kind of money laying around after just going through a short sale on their home? Sellers should be very careful regarding the tax obligations BEFORE considering a short sale, deed-in-lieu-of-foreclosure or foreclosure.

The IRS will use the tax basis on their property to determine their tax obligations so you might want to be able to figure this amount out.

See our article on IRS Form 982. The form is used to request a "reduction in tax attributes" due to insolvency. This may allow them to avoid having to pay taxes on the debt relief they experienced doing the short sale. Definitely worth talking to a tax attorney or accountant about!

Hardship Letter Guidelines

The hardship letter is important but don't get too caught up on this. Hardship may be as simple as a divorce to as complicated as you might be able to imagine. I do suggest the letter be handwritten and legible. It MUST be signed by all parties on the loan and experiencing the hardship.

Hardship Letter Guidelines
Remember to state the following items in a HANDWRITTEN hardship letter:

Hardships – What are the hardships (current and past). For example – unemployed, car accident, medical problems (personal or family), etc. Have the seller go into a little detail about each hardship. The following are the most important messages to get across to the Lender:

• Why they will not be able to be current again on the loan.
• That there is not enough income to make these payments.
• Think Cause and Effect here.

Your Assets – Explain that there are no assets with which to continue paying. "

Any signed exemptions of documents – If they do not have bank statements, pay stubs or tax returns, they will need to explain the reason in more detail in their letter as to “why” they can not provide those documents. (i.e. They’ve been unemployed for 6 months and have not been able to find work)

Note- realize that if you don’t have tax returns, then the bank will ask for Extension-Fillings. So, if they don’t have Extension-Fillings either, explain why in this letter. (i.e. “I haven’t worked in over 2 years and so I haven’t filed taxes nor extensions”, or “I haven’t filed my tax returns for the past 2 years and I failed to file extensions as well).

Bankruptcy – They could also mention “I don’t want to have to file bankruptcy”.

Sample Hardship Letter - Should be about 1 page, no need for 2 or 3 but do not have them submit a short 'note' about their hardship.

[*Remember, the SELLER must write their own Hardship Letter to the Lender(s) and preferably handwritten]

To Whom It May Concern:

I have been unable to make my payments on my house, and I am now facing foreclosure. My inability to keep up with the monthly payments is the result of (loss of job, illness, accident, death or disability of a wage earner – describe in detail what the hardship is)

In spite of my current financial difficulties, I expect that it will only get (better / worse). I am not in a position to continue making my mortgage payments. This was not at all what I intended but I have come to the conclusion that this is my only option.

Your help and consideration in this matter are very much appreciated.
{Signature} {Date}
{Printed Name}