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7 Items To Help Convince A Bank To Agree To A Short Sale
You have found yourself in a bad situation where the mortgage outstanding is more than the value of the house.
You have tried to get a loan modification and received the cold shoulder. You attempted for a forbearance agreement and fell flat on your face. You even went to government agencies to plead for help and all you got was an acknowledgement letter.
Now the final option is a short sale.
Remember that there are ups and downs in life. Don’t beat yourself over this situation. Consider that once you get the bank to agree to a short sale, that your troubles are over. You can then move into a rental and life will be peaceful again.
Now you have the small issue of convincing the bank to agree to a short sale.
A short sale basically describes a deal being struck between you and bank. Whereby the lender agrees to accept a lower amount of money to settle the loan. This lower amount of money will come from selling the house at a discounted price.
Since banks are profit-driven organizations, you might ask why would a lender agree to an arrangement like this?
There are various reasons including, but not limited to:
- Too many foreclosure on their books will not look good on financial statements
- They really sympathize with your hardship
- They basically need to clean up their books as reporting periods are approaching
If you still cannot see why a lender might agree to accepting less. Don’t think too much. Understand that these types of deals happen all the time. And there’s no harm tossing your hat into the ring at this point.
Here are some items to prepare on your end to make your case a success.
1) Letter of hardship
One of the most important criteria a bank looks for is real actual financial hardship experienced by the borrower.
While you might feel tempted to write a novel about your stories, try keeping everything into a one-page document. Describe your situation with details.
And of course, you cannot expect the reader to take your word for it.
This is why you need to include…
2) Copies of outstanding bills
A person will be truly have a heart of stone if he feels no sympathy when seeing someone with a mountain of essential bills overdue.
The bills to document include:
- Phone bills
- Utility bills
- Medical bills
- Car loans
- Insurance premiums
- Credit cards
At this point do be mindful not to include any bills related to luxurious living.
This means that you should keep the membership fees notification for the country club in a corner at home.
3) Bad real estate data in the area
To show that the house is in such a bad shape that the bank would be better off having it off their books, prepare data that indicates the sorry state of properties in the neighborhood.
This can include:
- Recent low transaction prices
- Market performance compared to last year
- Statistics showing the HUGE number of properties on the market
- Price drops of listings in recent months
- Listings have have been available for a long time without getting nay buyers
- Declining trend of home prices in the vicinity
Let’s put it this way. If you are holding on to a stock you bought at $10. And the value has fallen to $6 currently with no light at the end of the tunnel in sight. Would you be willing to let it go today if every sign points to it continuing on a downward spiral with no way back?
While data will get a reader to see things from an intellectual perspective, you’d want to work on his visual perspective too.
So you might want to also include…
4) Pictures of doom and gloom
It is entirely possible that an analyst will churn the data and feel that things cannot be as bad as the picture you are trying to paint.
In this case, pictures can help you slam the point home.
Take pictures of:
- Boarded up houses around the area to show you are not an isolated case
- Abandoned houses that owners have given up on and ran away
- Picture of the condition of the house in dire need for repairs
Pictures tell a thousand words. And it is even more true when photographing homes in bad condition.
5) Net sheet
A net sheet is basically a statement of finances that depict how much proceeds the bank will eventually collect if they accept your short sale proposal.
This will be useful for analysts who like to get to the point rather than go through the whole presentation.
The best part is that this simple statement can be prepared by the title company doing the closing.
6) Sales contract
If the bank sees that you are pro-active enough to get this settled, the more it might lean towards agreeing to the proposal.
If you already have a buyer on hand, get the conditional sales contract ready.
This would communicate that everything will move quickly along. And all that is needed is for the approval to arrive from the bank.
This can actually be your best bargaining chip.
So if you don’t have a ready buyer, start looking for one who would agree to the price you have in mind.
And don’t forget to get the agreement down in writing.
7) Tax returns
The chances are that if you are dealing with bankers and claim a drop in personal income, they wouldn’t believe it until they see your tax returns.
So remember to bring them to the table.
And if you are not really experiencing a loss of income and just trying to pull a fast one, you should really take a look at yourself in the mirror.
To allow the banker to see the impact of losses you are incurring, include tax returns from the previous 2 years as well.
Finally, do note that short sales are not something you should attempt to exploit. Some homeowners really need to get it done so that they can of on with their lives with one less major headache.
If people start abusing the short sale process, lenders will inevitably get more stringent on the criteria to meet. This can mean that homeowners and investors who truly need it might find it even more difficult to get it accepted.