Question: What is involved in a short sale?
Answer: -This is a great question…the short sale process involves several steps. First the homeowner falls behind on payments because of some hardship or challenge and can no longer make payments. The house is over leveraged, so the loans are more than what the house is worth, so it makes it near impossible to sell.
If you are the homeowner, here is what is now involved in a short sale…
Homeowner – Buyer/Investor/Agent approaches you to buy your home for less than what it’s worth. You have to concent or authorize buyer to talk to lender about loan(s). You will fill out some paperwork describing your financial hardship, describing your current financial condition, and most likely you’ll also provice some pay stubb’s if you’re employed, bank statements, W2’s, etc. You will be asked to cooperate fully with the buyer to get the short sale pushed through. Once the offer is accepted, you’ll have to sign some more paperwork basically disclosing to you the terms of the short sale agreement and you’ll go to closing and be done. Then you’ll have to move out of your home if you haven’t already. Then the bank will either 1099 you for the difference they lost or they can file a deficiency judgment against you. But a good short sale expert can eliminate the whole deficiency judgment option all together, so really you just have to worry about the 1099.
If you are the buyer or investor, this is what is involved in a short sale…
Buyer/Investor – First you will fax the authorization letter to the bank, the homeowner just signed and wait 24 to 48 hours. Then you will request a “short sale” or “workout packet” from the bank. In the packet will be everything the lender requires in order to accept a short sale. Fill it out completely and make sure you include everything the lender requires. Once everything is filled out, send it back to the lender and start looking for an end buyer. If you already have your list of buyers, call them up and let them know about your deal. You’ll use wet funds to close your deal and sell the property to your end buyer. You make your money and do it over again.
My wife and I have been involved on the buying end of a short sale for 8 months…
We are getting “close” (for the 6th time now), and the short sale specialist working with the seller wants to rearrange the contract as follows:
-Decrease the contract by $15K
-Have a gentleman’s agreement that we cut a check to sellers for $15K at close of escrow, $10K of which will pay off a promissory note to the 2nd lienholder, $5K of which the seller will pocket.
We are obviously NOT ok with the sellers pocketing money on the deal, but “hiding” $10K from the 1st lienholder to backdoor to the 2nd lienholder seems a little shady. Also, it’s not stated contractually anywhere.
We have been assured that, while weird, this is very typical in the short sale game. We are not comfortable.
Any advice?
Yea, it’s illegal to give the homeowners any money. However, it’s not illegal to buy items off the homeowner because it just so happens you are in the market for some tools, furniture, cars, or whatever. Make sure you have a bill of sale to document what you purchased from them.
This is a classic example of mortgage fraud, Marty. You will have to sign a settlement statement at closing, affirming that what it shows is a “true and accurate” account of what transpired financially between all parties to the best of your knowledge. There may also be a settlement agent involved who is acting fraudulently by preparing 2 different statements, one for you, and one for the lender who is being ripped off. A short sale is defined as a lender accepting less money to consider their loan paid in full, wherein the seller receives no proceeds-NONE.($0.00) is what the seller’s side should show. I hope this information helps.