Illinois continues to make top 10 lists for states severely affected by foreclosures. REALTOR® Marki Lemons with Rubloff Residential Properties in Chicago has been working the foreclosure market since 2002 and has closed hundreds of successful short sales and represented buyers of REO properties.
“Traditional sales are down, foreclosures and REO properties are increasing, so agents really need to learn about the process,” says Lemons, who used her background as an Illinois certified education and pre-license instructor to develop a short sale designation program.
For the Chicago Association of REALTORS® she developed a short sale training class and sample letters to get everyone on the same page: seller, buyer, listing agent, buyer’s agent.
“Step one is sending the ‘Dear Seller’ letter by e-mail or mail to the homeowner after a phone interview and before the listing agreement so they can get all their paperwork together,” says Lemons. “This can take some time and before you spend marketing dollars on the listing you want to evaluate it to be sure it’s something a lender will consider.”
She uses the “Dear REALTOR®” letter to make sure the REALTOR® representing the buyer in a short sale—and the buyer—understands the process and to “put everyone at ease.” Buyers should expect that the process can take about three to four months after the acceptance of an executed contract, according to Lemons, and patience is required by all.
“Basically education is the key but a REALTOR® who wants to get in the short sale business needs to learn by doing,” says Lemons. “Educate yourself but you have to practice. That’s the only way to get better and for the process to appear simple.”
Dear (SELLERS NAME):
I am glad you called me earlier because maybe we can resolve this issue together. I am a licensed real estate agent with __________. After I completed a CMA of your property I believe you may be a candidate for a short sale.
I will need the following information from you in order to analyze whether or not your short sale will be considered by your mortgage company:
1. I need a letter from you (called a "HARDSHIP LETTER") stating what has changed since the purchase of your house that has left you unable to pay the mortgage.
2. Tax Returns for 2006 & 2007
3. Last two paycheck stubs (or if self employed) last two bank statements from your company.
4. Last two bank statements for you personally.
5. Settlement package from purchase of home (to review your situation when you purchased).
6. Last mortgage statement (date, 2007) for all mortgages on property.
After you have gathered the above information, I can meet you at your convenience.
After our meeting:
1. I will need your signature on the enclosed form authorizing me to speak to your lender. This is a third party authorization form.
2. I will contact the bank to see if they are interested in working out the terms of the loan or a short sale.
3. I will list your home at market value. We will have a listing agreement that I will have you sign (the bank will ask for a copy of the listing agreement).
4. Forms - (Mortgage company will send you via facsimile through me, after I speak to them) asking for a financial analysis of your entire situation including all expenses, including bills you have and income to see if you qualify. They may require other things depending on the company. Each lender has its own rules.
5. We will need to attract a ready, willing, and able buyer and enter into an executed contract.
6. We will submit the contract to the bank for their approval.
7. The buyer must have a pre-approval letter from the mortgage lender he/she will be using, disclosing that he/she can afford to purchase this house and move forward in the purchase of the home and can close within 30 days of the contract.
8. The buyer will move forward in the purchase as we wait for approval.
9. Once your lender gives us an approval will set new closing date (generally within 30 days of lender approval).
10. We will move forward with closing to occur at the title company.
Let me know if you want to proceed and we will set up an appointment to go over everything. You can reach me at ________.
Jane Smith, REALTOR®
REALTOR® Company Name
Thank you for your offer on my short sale listing. I will do everything in my power to insure a smooth transaction.
This letter is an overview of the short sale process. If you have any questions, please give me a call. The two most important aspects of the transaction will be cooperation and patience.
What is a short sale?
A short sale occurs when a lien holder is willing to accept less than the full mortgage pay off. They short the loan to allow the homeowner to sell the property. A property is a candidate for a short sale when all liens, plus costs of sale, exceed the market value. These liens include mortgage liens, mechanics liens, tax liens, unpaid judgments, and unpaid HOA fees.
What are the steps in a short sale?
There are many steps to successfully complete a short sale. A short sale transaction takes an incredible amount of time, effort, and expertise to negotiate with the lender and get the job done.
Why would a lender agree to accept a short sale?
Studies have shown that the cost of a foreclosure to the lender is an estimated $60,000 and takes 18 months. You can understand why the loss of a short sale may be less than the cost of foreclosure.
As the seller's REALTOR®, I will perform or coordinate the following:
• Establish contact with the lender's loss mitigation department.
• Obtain a signed authorization from the seller that allows me to speak with the lender on their behalf.
• Obtain mortgage information from the seller.
• Order a title search on the property to research liens and judgments.
• Order payoffs to know the exact numbers for the settlement statement.
• Order an estoppel letter from the Home Owner Association because many times there are back HOA fees due.
• Order a short sale package from the lender.
• With the seller's assistance put together the short sale package and submit it to the lender.
• Provide access for the BPO or appraisal. Provide comps if needed.
• Assist the seller/buyer in obtaining repair estimates.
• Negotiate, negotiate, and negotiate. Negotiation skills are a must.
• Stay in touch with the lender throughout the process.
To insure a smooth transaction these are items a buyer's REALTOR® can perform:
• Educate the buyer about the short sale process. Short sales require patience. It may take 2-4 months to complete the transaction.
• Assist the buyer in obtaining a mortgage pre-approval before submitting an offer.
The borrower's lender is going to require proof of funds if it's a cash deal or a commitment letter if there is financing involved.
• Counsel the buyer to expect to buy the home in its "as is" condition. The seller doesn't have any money to make repairs and the lender is going to require an as-is offer.
• If you are inexperienced with short sales, let me know.
• The seller's lien holder(s) is primarily in control of the process as they are the decision maker.
• Be patient and counsel your buyer to be patient. This cannot be emphasized enough.
How long will a short sale take?
Short sales can be very time consuming and require patience from everyone involved: seller, buyers, REALTOR®, and lender.
Approval may take two days to two weeks to two months or more. Some short sales may take as long as three to four months from beginning to end. As of 2008 the average time is 8.1 weeks, according to the National Association of REALTORS®.
The lien holder(s) has the final say. Remember, the lender is the one who approves the short sale 100% of the time. If there is more than one lender, I will have to negotiate with each of them separately.
What buyers need to know
Buyers of short sale properties need to understand what they are getting into. Some buyers believe that they are going to be able to "steal" a property and make a killing by reselling it. They have heard the stories that investors tell and think it's a piece of cake to buy a property 50 cents on the dollar.
While that may be the case in some instances it is not the norm and should not be expected. Remember, the lien holder(s) want to sell the property as close to market value as possible. In fact, most lenders have pretty rigid guidelines as to how far below market value they will sell for. Beyond that point, they will take the house back in foreclosure.
Again, if you have any questions, please give me a call. I look forward to working with you and to a successful transaction.
Jane Smith, REALTOR®
REALTOR® Company Name
REALTOR® Marki D. Lemons, ABR, CRB, CRS, SRES, MBA, is a national trainer and broker with Rubloff Residential Properties in Chicago. She developed and teaches the Certified Distressed Property Representative (CDPR) designation and the "Short Sales Results Now" guide to transacting short sales (www.shortsaleresultsnow.com).
Editor’s Note: These are letters used by Marki Lemons in her practice. Per IAR legal counsel, REALTORS® are encouraged to seek specific legal advice and assistance in their own practices that might include short sales.