What are the Elements of a Short Sale Package?
A short sale package refers to a proposal made to a lender that includes an offer to purchase a house facing foreclosure. The term comes from the fact that the offer is less than the payoff amount and is a shortage to the lender. In a short sale, a proposal package contains several fixed elements and a variety of supporting documents.
Short sales are an alternative route to foreclosure, a forced returning of a property to the lender due to lack of payment. Foreclosures are serious issues for the homeowner, lender, and community. To mitigate those potential multiple losses, the lender will consider receiving less than full payment in return for avoiding the expense and negative publicity of a foreclosure and the continued loss of time and money due to the expenses of the non-producing asset.
The minimum elements of a short sale package are specified by the lender. There are typically one or more letters of introduction to the package. These may be a letter of authorization, allowing a third party to negotiate on the borrowers’ behalf, a cover letter summarizing the package offer contents, and very commonly, a hardship letter from the borrower stating the necessity of a short sale and the reasons the homeowner cannot make the payments.
The short sale package will back the hardship letter by including bank statements, pay stubs, tax returns, and other documents to demonstrate the homeowner’s needs. Other requirements may include borrower W-2s, utility bills, and character references. Canceled checks or stamped receipts offer proof of payment of utility bills and may be acceptable to the lender to prove the borrower is residing in the home.
Additional documents may help the lender evaluate options and costs available. Depending on the lender, an appraisal or a broker's price opinion will help establish the value of the home in current condition and marketplace. Any inspections performed on the house should be included. A contractor’s bid sheet will substantiate costs needed to bring the house to expected neighborhood codes and standards.
The borrower may add additional documents that support a lower value for the house and to claim the lender will be in a worse position if foreclosure on the house is pursued. Documents added to the short sale package could include code violation citations for the property, a report from the sheriff’s department detailing the nearby residences of sexual offenders, or the presence of environmental or distasteful elements such as a nearby industrial plant or busy highway. The homeowner will also want to include a statement of latent defects, or problems with the home that only the homeowner knows and must reveal.
The real estate agent will provide the listing contract and summaries of recent homes of the same type and close to the house under consideration. The agent will generally include an executed copy of the short sale offer and settlement documents. A copy of the payoff request letter to the lender and the lender’s reply is included. An orderly presentation of the short sale package may facilitate a more positive response from the lender and should help all involved understand the proceedings.
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