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Short Sale Handout John Lovestrand

Short Sale Handout John Lovestrand

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Published by Matt Dollinger
This handout is the follow along guide for Attorney John Lovestrand's class to @properties agents on Short Sale real estate transactions.
This handout is the follow along guide for Attorney John Lovestrand's class to @properties agents on Short Sale real estate transactions.

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Published by: Matt Dollinger on Apr 06, 2010
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09/20/2010

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Topic - Short Sales
Date: April 6, 2010 Location:
@Ohio
 To:
@agents
From: John E. LovestrandOutline:
1.
 
Basic Intro / Overview
a.
 
List Price (Net Proceeds) less than Mortgage Debtb.
 
Credit Blemishes: Short Sale vs Foreclosure vs Bankruptcy
2.
 
Agent’s c
lient prep
 a.
 
Expectations vs Reality: No Quick Fixb.
 
List as Short Sale? Not for all
under-water
sellers3.
 
Pre-negotiated
 
with client’s (seller’s) lender(s)
 a.
 
Local
“TLC” bank
vs Monolithic institutional lenderb.
 
Hardship explanation & paperwork (e.g., Tax Returns, Updated PFS,Updated monthly P & L)4.
 
1
st
 
M’gage
 
only
?
Batter Up
a.
 
Debt vs Purchase Priceb.
 
Differential
 –
Dollars & Percentages
5.
 
1
st
 
AND 2
nd
 
M’gages?
Fuhgetaboutit’ 
? May Still Be in the Ballgame
a.
 
More Difficult; 2
nd
Lender: No Money
 –
No Incentive; Token Amountsb.
 
Same Bank -- 1
st
& 2
nd
 
 –
effectively a 1
st
mortgage only
6.
 
Contract stage
 a. S
eller’s
Contingency Verbiage
b. Buyer’s Contingency Dates –
Tolled?
Or 
Commencing Immediately??
 
c. Rider 20B [strike 1 of the 2 parenthetical options]d. Vet AA/I issues upfront; leave only Buyer
s mortgage contingency
7.
 
Leg work
 a. Before -- List Agent or S
eller’s
Lawyer? Call, call call / Fax, refax, refaxb. Now
 –
3
rd
party outfits (e.g., Short Sale Division, Lush Life Capital,Certified Negotiations)
8.
 
Attorney’s fee quotes
 a. All-or-nothing vs Reduced Amounts; Seller
s lawyer vs Buyer
s lawyerb. Delantey & Lamberis
(Evanston)
; Equity Law Office
(Bucktown)9.
 
Back-Up Plans
a.
 
Plan B: Deed in Lieu (of Foreclosure) Option
 –
if Short Sale craps outb.
 
Plan C: Consent Foreclosure
 –
if title extraordinarily encumbered
10.
 
Commission Cut?
Not So Much Anymore
 a.
 
Sign up the Listing Agreement @ 6%
b.
 
Lender Expectations
 –
may cut it down a percent or 211.
 
Federal Tax Credit
 
$8,000 1
st 
time buyer; $6,500 eligible move-up buyer 
 a.
 
Short Sale
 –
 
Fughetaboudit?!? 
 
 –
less than 3 months out
 –
 
6/30
closeb.
 
REO
 –
 
Sure Thing
 
 –
Lender looking to close ASAP, typically within 30 days12.
 
REO Sale
Real Estate Owned 
– 
Buying from the Bank 
 a.
 
Good News
 –
Certainty of Closing; Selling Bank might also finance buyerb.
 
Possible Good News
 –
Selling Bank might also finance buyerc.
 
Possible Bad News
 –
No Warranties; AS IS CONDITION; No Surveyd.
 
Potential Pitfall
 –
Title
should be
Clean
 –
Buyer
s attorney
s concern
 
What is a Short Sale?
A
short sale
is one where title has transferred; where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cureall deficiencies.
What is a “Potential Short Sale”?
 
A
potential short sale
is one where the listing agent reasonably believes the purchase price may not beenough to cover payment of all liens and costs of sale and the seller is unwilling or unable to bringsufficient liquid assets to the closing.
1.
 
Gather Information from the Seller and Other Sources
a.
 
It is important to be aware of how much is owed on the property and whether the seller isin default on any mortgage liens, taxes, or association dues.b.
 
Is the seller in default on any liens? If so, has any legal action been taken by thelienholder(s)?c.
 
Is the seller aware that there may be insufficient equity? This can be important because theseller may believe that the value of their home is higher than it actually is. It is especiallyimportant to be as accurate as possible in your market value assessment.d.
 
Create a careful Comparative Market Analysis (CMA) or
Broker Price Opinion (BPO)
usingthe most current comparable sales. Be realistic about the value. Short sellers cannotusually afford to try a high price first then adjust down over time. Include all costs of sale,such as commissions, closing costs, any interest and penalties on loans or taxes in default.In your best judgment, will there be positive proceeds or does the seller owe more than theproperty is currently worth after all selling costs?
Note:
Recourse Loan. An attorney will need to ascertain whether the loan(s) that might be
subject to a deficiency in a short sale are “Recourse” or “ 
Non-
recourse”. In a
recourse loan
 , the borrower retains personal liability for any deficiency after a sale
or foreclosure. The lender has “recourse” to the pers
onal assets of the borrower tomake up any deficiency. In a
non-recourse loan
the lender is limited to whatever  funds are available from its security interest in the property itself, and cannot forcethe borrower to repay any deficiency. Each state has its own rules and in somestates a loan can be either recourse or non-recourse depending on factors such aswhether it was a purchase money loan or a refinance.
These are legal questions.Do not try to answer them yourself.
 Always recommend professional legal,credit, and tax advice.
Important Note:
Offer the Lender a “Short Sale”.
Be aware that, on occasion, lenders have
“approved” short sales that included personal notes for the deficiency, and unwitting
sellers have signed the notes without a full understanding of the consequences.
Note that the lender is not a principal in the transaction. The agent represents theseller, not the lender 
. In a short sale, the offer is negotiated with the seller, just asin a traditional sale. The offer is then submitted to the lender, not for an
“acceptance” but for 
approval 
of the terms and net proceeds.

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