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Negotiating Short Sales

Many investors don’t want to spend the time on short sales because their up front costs can make the deal less lucrative. However, with some skill and research, you can negotiate a deal that works for you, the homeowner and the lender. There are three main steps when negotiating short sales.

1. Gather the Necessary Paperwork

You will start by gathering both general paperwork as well as lender-specific paperwork to begin the short sale. As you are beginning the paperwork, keep in mind that this is not just an agreement between you and the lender or you and the seller. It’s a triad, with all three parties needing adequate representation. There are several forms that will require the signatures of both you and the current homeowners. These forms may include:

• Purchase and Sale Agreement
• Estimated Net Sheet to show how much each party will receive
• Letter of Hardship to show the homeowners cannot make the payments
• Financial Overview to show the expenses, income, assets, etc.
• Authorization Release Form to allow the lender to speak to you about the mortgage
• Any other forms required by the lender

If possible, have the homeowners accompany you on your trip to the lender so that signatures can be made and decisions can be figured out on the spot. It will save you plenty of legwork in the long run as well as keep everyone informed.

Many institutions will have a separate packet of information that will need to be completed. It is most efficient to obtain this packet prior to meeting with the homeowners so that all information can be compiled in one meeting.

2. Meet with the Loss Mitigation Department

After you have completed all the necessary paperwork with the homeowners, the next step is to start contacting the lender. Begin by contacting them and asking to speak with the loss mitigation department. If possible, ask for the name of the individual who handles short sales. Keep detailed records of each phone call as this process can be drawn out and it will be helpful to track the information you are given. Remember, you are trying to work out a deal with the institution, so be polite and patient at all times. If you do not develop a positive rapport with the staff, you may have no chance of the deal going through.

When you reach the individual in charge of short sales, introduce yourself and offer the following information:

• Identify the homeowners and their account number
• Identify yourself as the representative
• Ask for a fax number and fax the authorization to release information form so that the lender can speak to you about the mortgage. It is best to stay on the line while you fax the information so you won’t have to try and relocate this person.
• Tell them that you are interested in a short sale. Here is where your skill comes in as you begin to negotiate and convince the lender that this short sale is the best option for them.

3. Negotiate

As you begin to work with the lender, the most important factor is to BE PREPARED. These lenders have hundreds of files to work through and do not have time to find missing pieces or teach you the short sale process. Complete your research ahead of time so they see right from the start that you have done your research and are knowledgeable. This will give the impression that you will be easy to work with and less work for them may mean an easier negotiation for you.

As you are working with the lender, keep in mind these points:

• Determine ahead of time if you are going to reveal that you are an investor. There are mixed feelings about letting the lender know this upfront. If you choose to tell them, make it known in the first meeting so the standards are set.
• As an investor, let them know that you are knowledgeable about the process and while you are hoping to make a profit, you are also looking at their best interest in the situation.
• Identify selling points. How will the lender benefit from this arrangement? Will it avoid bankruptcy? Will they be able to recoup a large percentage of the mortgage? Will it avoid foreclosure? Use your skills to market these points to them.
• Keep in mind that a short sale can be a win-win situation for everyone. Your goal is to accurately portray that to the lender in a professional, clear manner.

The next step is for the lender to go through the paperwork, look at the mortgage terms and current rates, determine the value of the property, and hopefully find the amount that you negotiated appropriate. However, don’t expect it to happen too quickly.

Sample Short Sale Timeline

The short sale process can take time and effort for all parties involved. You may find that the lender takes extensive amounts of time to conduct these appraisals, or you may feel you are getting the “run-around.” Patience is key. Keep following up with the appropriate persons and follow through with any requests made of you. Here is a rough idea of what to expect as far as processing time is concerned:

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