Short Pay or Short Sale...... What is it?
A short pay is when you ask a bank that has a mortgage on your home to take LESS than is owed.
In today's market we are seeing more and more situations where a seller actually owes more than what the current market value dictates. It is an unfortunate situation but if handled the right way the owner may avoid getting a foreclosure rating stuck on his or her credit report for 10 years.
Follow these steps for best possible out come.
Find out if you qualify as a hardship
There has to be a specific reason why the owner can no longer make payments. Steps 1-3 shows how to calculate the figure the lender is willing to lose, that is important because it helps homeowners when submitting an offer closer to what the lender will accept. Step 4-6 shows you the documentation you need to prove a hardship and how your Realtor is to submit the offer package to the lender. Steps 7-8 shows you what you need to do and what you can do leading up to the decision of the lender.
Step 1
Verify the value of the subject property. Talk to an appraiser for a comparable market analysis or you can talk with your Realtor.
Step 2
Add up all the costs of selling the property and request "Pay Off Demand" from mortgage provider, this will provide you accurate figures for pay off. Include all broker, escrow, title, appraiser, notary, ect...fees. Talk with your Realtor they can provide you a estimated net sheet detailing your costs.
Step 3
Do The Calculations> Take the appraised value and add all the closing costs. Compare this amount with the payoff amount. Find out what percentage of a loss it is to the lender. Remember most lenders will not take more than a 15% loss overall when compared to the payoff amount. The only time a lender will make an exception and accept less than what their guidelines permits is if the subject property is all ready worth less than the 15% threshold. (Feel free to contact- Lender in question and see if they are willing to tell you specifically what their guidelines permit?)
Step 4
Offer has been accepted. Make sure the offer includes commissions and what specific fees you want taken care of. NOTE: lender will only pay for escrow, broker commissions, and any delinquent taxes. Everything else (notary, appraisal, title, etc...) falls into the responsibility of the buyer!!! Make buyer(s)
aware and make sure they have the money to close.
Step 5
Your Realtor will put complete offer package together to fax to the lender.
What should be in the complete package?
This is a general list, call lender first to get a specific list and also their hardship application.
-Offer with purchase contract.
-Hardship letter. Make up a letter explaining seller's predicament.
Examples include loss of job, not able to keep up with payments, etc.....
-2 most recent bank statements.
-2 most recent pay stubs.
-Last 2 years W-2 or 1099's if self-employed.
-Estimated HUD 1 showing all proceeds and losses.
All this is needed to prove hardship! Do your research.....Trust me, the lender will do their research.
Your Realtor will also include Underwriting Approval from prospective buyer's lender.
Doing it this way the lender knows you just need their green light and go ahead to close this transaction.
Step 6
Your Realtor will fax a complete package to the loss mitigation department. You can call the subject lender's customer service department and find out what that fax number is. Talk to a service rep in loss mitigation to see if what you are sending is sufficient or if you need something else. Remember every lender has their own specifications and guidelines. Also it will not hurt that you remain an active participant with your Realtor while negotiations continue with your lender/bank.
Step 7
Follow up with current lender on a regular basis. Your Realtor will confirm they have the purchase agreement along with all other required documentation. Keep in contact, always talk with a service rep in the loss mitigation department and ask the following questions:
-See if they received the package?
-Has it been assigned to a rep?
-Who is the rep?
-What is the time-line?
-Has an appraisal been ordered?
-Has offer been accepted/countered?
Step 8
Depends on what the lender DECIDED!!! If your offer is accepted, great, then proceed with new purchase transaction. Open escrow, get new loan documents notarized for buyer, fund & record loan! Owner(s) (that you) are released from obligations, buyer owns property. NOTE: Make sure you close before Payoff Expires!!!
If your offer is countered, see if what the lender is proposing is suitable for your prospective buyer? If it is acceptable, great, now proceed with purchase transaction and close escrow.
If Not suitable, NEGOTIATE!!! Find a compromise between lender and buyer.
If your offer is denied, find out why? See if there is something else you can do? If Not, then move on to the next offer.
1. Verify The Value of Your Property
2. Add All Your Costs To Sell
3. Determine The Amount Owed
4. Calculate Owed Amount to Proceeds
5. Provide Service Provider With A Hardship Letter
6. Submitt Information to Your Service Provider
See Steps 1- 8 Above for more details