Sellers, quite naturally, see a short sale as a way to protect their income and assets. Lenders don’t see it that way at all. In fact, lenders see ALL the seller’s income and assets, not just the property, as a potential source of funds to pay them what is owed on the loan. This is true even though most lenders cannot take default judgments on most residential property in Oregon. Most lenders will want the seller to provide proof the seller lacks the income and assets to payoff the loan at closing before they will agree to reduce the payoff on their loan.
Your seller client should anticipate that the lender will ask for information about savings accounts, investments, other real estate, cash, money market accounts and the like. Tax returns are, of course, always something lenders like to see. Having this information available upfront will not only speed up the short sale process, but go a long way toward convincing the lender they are dealing with a competent professional. Having in hand a financial statement that shows the seller doesn’t have the ability to pay off the loan, makes a successful short sale a lot more likely.
You can also make a short sale more likely by talking to your client about a “hardship letter.” The letter will explain how the seller got into the financial situation they find themselves in. Job loss, illness and other “but of the grace of God” explanations of financial distress make a better impression than asset mismanagement, real estate speculation and so on. It’s not that a lender will never agree to a short sale where the hardship was self-imposed; it’s just that like all people lenders tend to be more sympathetic when people are caught up in circumstance beyond their control. The lender will also be able to use the hardship letter to assess the likelihood of the seller filing bankruptcy. If that is a possibility, they may be more open to working toward a short sale. Click here for a discussion of bankruptcy laws.
Talking to your client about finances and hardship may suggest that marketing the property as short sale is not really their best option. Ethical agents will at this point suggest the seller explore other options. A good source of reliable information about foreclosure can be found on the website of the Department of Housing and Urban Development at: www.hud.gov/local/or/homeownership/foreclosure.cfm. Once you have talked to your client and have a financial statement and hardship letter, it is time to contact the lender.
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