SPECIAL TO THE MIRROR
In order to successfully negotiate a short pay, without having a promissory note on the balance of the loan amount, you will have to demonstrate that the probability of a foreclosure in your case is high. If it is, then the bank may consider you a candidate for a short pay when they consider other factors. The package you submit to the lender will consist of all the supporting documentation illustrating your hardship situation and your need for short pay approval. It is not enough to write a hardship letter alone, as most lenders will require proof of the reasons why they should approve your file.
The lender will consider the following: illness of the borrower(s) when accompanied by doctor’s statements, death of a borrower(s) verified by a death certificate, divorce or legal separation when accompanied by legal documentation from the court or your attorney, involuntary job loss with documentation, check stubs, social security or other award letters. In addition to the above reason(s) and supporting documentation you will provide the lender, they will also require complete financial disclosure of income and assets and obtain your past 2 years of income tax returns from the IRS.
Most lenders will require that the entire package of information be submitted at one time. However, the loss mitigation department representatives and negotiators, who are those that help us negotiate short pays, may each have up to 200 files at one time to process. As a result, they have no time to track down paperwork or people. Therefore, it is important to send what information is requested as quickly as possible. When the file is complete, it gets moved to the top of their stack and pushed toward approval. As the file is processed, it is submitted to the investor for approval after which they may have other questions or requests of you, the borrower.
As you start to think of what will comprise your package, it is also a good time to write a letter of authorization to your bank, referencing your loan number(s) and authorizing your agent to be in touch directly with your lender. Your real estate agent will be doing most, if not all, of the negotiating and following up on your file and this is critical to facilitate that process.
After you or your agent has submitted the authorization by fax or email to your lender’s loss mitigation department, your real estate agent can then contact your lender directly. Most lenders will not send out a package with their checklists and forms before you have listed your home and received an offer. They really don’t want to take the time to consider approving a short pay if it doesn’t have an offer for them to review at the same time. Other lenders send out the package at the initiation of the process in order for you to get started. It is prudent to begin collecting your last two years’ tax returns, pay stubs, bank statements, financial statement, hardship letter, etc. whether or not you actually have received the lender’s package.
If you want to successfully complete a short sale, it is critical that you and your agent are ready, willing and responsive over a period of several months while the process is ongoing. Patience, perseverance, and skillful communications are essential to get the job done.
[Editor’s Note: Part 3 of this series will cover the complex procedures involved in the marketing and approval phases of a short pay sale.]
Michael Edlen and his team are experienced distressed property owner specialists, certified by the National Association of Realtors as a short pay and foreclosure resource. They may be reached at 310.230.7373 or Michael@MichaelEdlen.com.