7 steps on how to negotiate a short sale with banksFor active real estate investors, “short sales” can be a key source of investment opportunities.

They’re less common now, but short sales are still important in many regions that are still working through foreclosure backlogs.

Yet short sales can be difficult transactions; the lender must accept less than the total mortgage amount due.

Not all lenders will even negotiate a short sale, so it’s important that the buyer / seller have a good real estate agent or attorney to sell the idea to the lender’s loss mitigation department.

Short sales involve asking a lender to accept less on a sales price that would not even return its full mortgage amount – and to forgive the seller for any balance owed. That doesn’t mean that the seller would get off scot-free, though; in fact, the credit impact of a short sale is about the same as that of a foreclosure. The real impact to a credit statement will likely have already occurred, when a homeowner has begun missing payments.

Are lenders likely to negotiate?

You can’t just wake up one morning and decide you’re going to sell your home at a loss by asking for a short sale. Not all lenders want to even work with homeowners on short sales (it’s not easy to take a loss!). Lenders will be more agreeable to negotiation if the existing homeowner is behind in his payments.

7 steps on how to negotiate a short sale with banks

Here are 7 steps on how to negotiate a short sale with banks and what to bring

  • A real estate agent or a lawyer can be a tremendous help. They may be more effective in contacting a lender’s loss mitigation department to find out, and to help the lender work through the alternative scenarios.
  •  Homeowners often end up dealing with more than one bank negotiator. These “work-out” positions are simply not preferred jobs – either for the bank or the employees – so be prepared for some frustration here.
  •  Documentation is key. Banks need to be convinced that the market has dropped sufficiently that a current short sale is in their interest. Banks demand a plethora of documentation before approving a short sale.
  • Banks will request an appraisal (sometimes several!) and may also order a broker’s price opinion. When the listing agent submits the short sale offer, the agent should also include a comparative market analysis that justifies the price in the short sale offer. It needs to be valid; if the bank believes it can make more money by taking the property through foreclosure proceedings, that’s the direction the bank will head.
  • A seller, and the potential buyer, should both be prepared to argue with a rejection and show comparable sales that support the short sale offer price.
  • If the seller is asking for debt forgiveness, the bank will want to see a hardship letter from the seller that explains why the seller cannot afford to pay back the shortfall difference. Owners should prepare a hardship letter, a profit and loss statement, and a monthly budget that each show that the seller has little or no assets and no disposable income.
  • Finally, the buyer must also pass muster with the bank. A potential buyer’s desire to buy a home does not mean that the buyer qualifies to buy the home, even if he has adequate assets. Buyers should be prepared to send the bank a preapproval letter and a copy of a sizeable earnest money deposit that adequately reflects the buyer’s ability to obtain a mortgage and his intent to close the transaction.

These are the issues that I’ve seen from my vantage point at my company – but I’m not a true expert in this area.  Investors running into situations involving short sales should definitely speak with agents or attorneys who are accustomed to working through these issues with banks.  Any comments from others who have more experience in this area? Please post any comments to help other investors in this space.

Visit Lawrence’s site here.


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  • Lawrence Fassler

    Lawrence Fassler, an attorney and real estate investor, is Corporate Counsel of RealtyShares, a leading real estate investment marketplace that places equity investments through North Capital Private Securities Corporation; a registered Securities broker-dealer, and member of FINRA/SIPC. RealtyShares as an institution does not advise on any legal issues, and this article is for general information only and does not represent professional legal advice. Contact the author at lawrence@realtyshares.com.

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