Short Sales

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Short Sales
Steve Sanders 951-271-3130 steversanders_at_kw.com
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Short Sale

• How to talk to lenders
• The Short Sale Packet
• Uses of and How to complete an LPO
• How to break into the REO game

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Foreclosures/NOD/REO

• REO inventory increasing
• Abnormally low sales combined with abnormally
  high inventory

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Foreclosure

• At Sale Foreclosure (minimum 115 days-IRS notice
  25 days in advance of sale)
• Notice of Default filed by Trustee
• 90 days to reinstate (bring current), either by
  borrower or subordinate lien
• At the end of 90 days a 21 day, Notice of Trustee
  Sale
• Right to reinstate up to 5 days prior to posted
  sale date.
• Payment in full must be accepted up to time of
  sale

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Documentation for NOD

• NODPA
• BNA
• DA
• AD

Agency Requirements

• Either Agent is bonded as an Equity Purchasers
  Representative or
• Referral (No agency-BNA)
• Seller can rescind for 5 days
• Buyer may not solicit transfer of ownership
  documents

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Negative Equity

• Pair up
• Discuss what would cause erosion of equity in
  properties where the home is worth less than the
  cost of liquidation
• Report your discussion back to the class
• 5 minutes

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Short Sale
Loans plus cost of sale is greater than
value Value 450,000 First 345,000 2nd 10
5,000 Escrow 800 Title
1,250 Commission 22,500 Equity -
24,550 (write off)
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What Does Short Sale Client Need?

• A quick sale or option
• Money to move elsewhere
• Save credit (as much as possible)
• Someone to guide them through tough waters

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What Lenders Want

• Repayment of debt, on time, as scheduled
• A predictable return on investment
• MONEY
• They DONT want Real Estate Owned (REO) that they
  have to liquidate to get their money
• They will do whatever they can to minimize loss
  while liquidating quickly

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Good Money After Bad

• Lender is already taking a loss
• Lenders wont pay to fix up
• Really, like probate, as is, where is!
• Termite report okay, Section I repairs not
• Limited requirement for disclosures

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Short Sale

• Will you work for free?
• Short Sale - Owners request, lenders decision
• Still will hurt credit, but not a foreclosure
• Talk to lender about possibility of, forbearance,
  modification LPO or assumption

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Short Sale

• Ask for a short sale packet
• Dont argue that they are asking for too much
  information
• If you have no lender agreement on commission,
  just like a box of chocolates, you dont know
  what youre gonna get.
• Get direct contact information for loss
  mitigation, asset management or REO.
• ASK what their policies are.

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Commission

• New rules as of 3/09. Lenders cannot cut
  commissions as long as they are 6 or less.

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Commission

• The statement subject to lender approval
  protects no one and will dissuade many from
  making an offer.
• Get lender approval of the terms and conditions
  of the short sale and the amounts to which they
  will agree.
• According to the DRE if it isnt in writing it
  doesnt exist. Most lenders will agree verbally
  but will not provide written confirmation.
• PAA

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Process

• Attempt to get a timeline from the lender for
  approval of an offer.
• Put the timeline in private remarks along with
  subject to lender approval.
• If the lender has agreed to all the necessary
  terms and conditions, in the private remarks
  state that the short sale terms have been lender
  confirmed.

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Short Sale Packet

• Hardship letter (SOB STORY) and documentation
• Borrowers tax returns
• Borrowers Bank statements
• Borrowers Current Financial Statement
• Property tax information from assessor
• Property profile
• Bio or resume of realtor
• Marketing Plan and timeline
• Accurate CMA including DOM
• Cost of Sale Estimate
• Commission (including disclosure of how much is
  paid to Selling Agent)
• Staging and repair costs to bring it to market
  standard (lender wont care)
• Estimates of costs for termite inspection (not
  repair), disclosure packet, escrow, title

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Liens, Senior or Junior

• If it isnt a matter of public record, it doesnt
  exist
• A senior lien is any lien or trust deed that
  appears on title before other liens (date)
• A Junior lien is any lien or trust deed that
  falls behind a senior lien (date)
• Except regardless of their position, property
  tax liens never go away
• Foreclosure of a senior lien wipes out all
  subordinate liens (except taxes)
• Subordinate lenders may reinstate the first to
  protect their position, then foreclose their
  subordinate interest

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The Angry Second

• Pair up
• What liens might appear on a preliminary title
  report?
• What reasons would a 2nd have for walking away
  from the deal?
• Report back to the class
• 5 minutes

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Liens, Senior or Junior

• Watch out for subordinate loans! Lenders losing
  100 of their loan, will likely take everyone
  down with them.
• 1st 475,000
• 2nd 80,000
• Sale Price 505,000
• Taxes 5,000
• 1st 475,000
• Commission 25,000
• Left for 2nd 0

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Short Sale

• Dont cheat on the comps. You will get caught!
• Create a prelisting packet, just as though you
  were doing a listing presentation. You have to
  sell the lender that you know what you are doing.
• Offer an appraisal if the lender gets tough.
• Lender may run an appraisal or get a BPO anyway
• If Lender estimates that they will only be able
  to recover 80-90 of value or less, a short sale
  is likely.
• Though some companies loan to own, most lenders
  just want their MONEY!

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Short Sale

• Maintain contact with the lender and report
  progress. The lender has reports to turn in.
• After an offer or offers have been submitted,
  call and keep calling. Every other day if
  necessary and wait on hold.
• A good transaction may result in referrals and
  possible REO business
• Also possible source of BPO (Broker Professional
  Opinion) income
• If you get the deal work it hard

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Unsecured Note

• Lender may want an unsecured note for the amount
  of deficiency.
• Sellers who agree to the note will escape with
  their credit somewhat in tact. Negotiate this.
• Notes, if paid, are not a charge off and remove
  immediate potential for taxation.
• If the unsecured note is not paid, a charge off
  will be recorded and credit will be affected for
  7 years.
• Help your seller, get a release of liability from
  the lender.

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Deed in Lieu of Foreclosure

• Helps the lender
• Sets workable time frames
• Less (slightly) hit on credit
• Taxable event?
• Discuss the deed in lieu only after getting
  listing

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Tax Consequences - CAR

• Capital gain or loss is the difference between
  the taxpayers basis in a capital asset (usually
  cost, plus improvements, minus depreciation) and
  the price the property sells for at the
  foreclosure sale or short sale.
• Foreclosure wipes out purchase money recourse.
  Short Sale does not
• Purchase Price 500,000
• Improvements 20,000
• Basis 520,000
• Short Sale 480,000
• Cap Gains 0 (-40,000)

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Tax Consequences - CAR

• If the basis is greater than the foreclosure or
  short sale price, the difference is capital loss.
  If the basis is less than the foreclosure sales
  price, the difference is capital gain and is
  generally taxable.
• Capital loss on personal use property, such as
  the taxpayers residence, cannot offset other
  types of income and gives the taxpayer no tax
  benefit.

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Excercise

• Pair up one partner is the lender the other is
  the agent with a short sale client with a good
  sob story
• Sale price 500,000
• 1st 400,000
• 2nd 110,000
• Commission 30,000
• Prepay 15,000
• Shortage 55,000
• Agent, sell the lender on working with you to
  complete a short sale
• Report back to the class

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Short Sale
The End
Steve Sanders 951-271-3130 steversanders_at_kw.com