Pre-foreclosure Investing -- Putting Together The Short Sale Package

By Author: Colin Egbert
Total Articles: 6
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When you work with the homeowner to put together short sale negotiations with the bank, you'll also be assembling vital evidence in a short sale package. This package is very important in preforeclosure deals. It provides enough information to (hopefully) convince the bank to accept your short sale offer on the homeowner's property.

Include everything you can in the short sale package that backs up your request for a short sale. Obviously, you'll want to leave out extra evidence, (unless the bank specifically requests it), that may hurt your claim.

Common Items in a Short Sale Package:

Standard Purchase and Sales Agreement & Escrow Instruction

This is the standard sales contract between you and the homeowner, since you will actually be purchasing the property from the homeowner with the bank's approval.

Authorization To Release Information

In order to get the bank to work with you, the homeowner need's to sign this document stating that they authorize their lender, the bank, to share all vital information concerning their mortgage with you. If you don't have this the bank won't ...
... talk to you!

Letter Of Agreement and Addendum

This is the cover your butt document stating that you will work with the homeowner and the bank to stop the foreclosure, but you can't guarantee that the bank will agree to stop the foreclosure during short sale negotiations with you.
Warranty Deed To Trustee
You'll need to get a notary to authenticate this document. It basically shows who owns the property you are attempting to purchase.
Agreement and Declaration Of Trust
In order to keep your own name off of public records you'll use this document to declare a land trust on the property, which you'll have rights too.
Letter That Trustee is Making Payments:
This letter is used when you have an agreement with the homeowner that indicates you'll be taking the property subject to and notifies the lender that payments will be coming from a trustee.
Escrow Letter
You'll use this letter to tell the bank to apply funds in an escrow account to the loan balance when the loan is paid in full and the short sale deal is complete. Be aware there is no guarantee the bank will comply with the instructions for your real estate investment. They may send the escrow proceeds to the original borrower, which is the homeowner. So, you'll need to make arrangements with the homeowner just in case this happens.
Special Power of Attorney
You'll get this signed by the homeowner in front of a notary. It applies only to the property and lets you make decisions concerning the property if something happens to it before the short sale deal closes.
Residential Real Estate Disclosure
This is basically to protect everyone involved. You'll sign it as the purchaser. It discloses any defects in the property and prevents anyone from claiming after the deal is completed that they weren't aware of certain defects in the property.
Hardship Letter
This is a very important letter in pre-foreclosure investing. The hardship letter allows the homeowners to explain in detail all of the reasons they were unable to make payments on their mortgage and why they'll be unable to completely pay off the mortgage. A good hardship letter can really help you seal the deal.
Financial Statement
This is basically the homeowner's pay stubs, copies of their past income tax returns and other items that show the homeowners really are in financial hardship. The bank will absolutely want to see this proof of hardship before discounting a loan and taking a known loss.
Suggested Extras to Seal the Deal!
There are a few extra pieces of foreclosure information you can include in your short sale package to get the bank's attention in this preforeclosure deal.
Cover Letter
The cover letter helps your short sale package stand out. It basically states who you are as an investor and that you are requesting a short sale. It also states why the bank should take the short sale. You can also summarize the major points of your package in this cover letter for the bank officer reading it.
Proposed Closing Statement (HUD1)
Eventually you'll find that a bank requests the HUD1form. It shows all the fees and payments that will be made to the parties involved in the short sale. It helps them know their bottom line on the deal at a glance. Plus, it ensures the seller is not receiving any compensation.
Opinion Of Value
This can be a professional estimate or your own statement. You'll back it up with a quick list of all the negative points of the property, its needed repairs and the lowest comparable sales in the area.
Estimate Of Repairs
If this property in pre-foreclosure needs repairs make sure you get estimates for all of them and include those estimates in your short sale package to back up your discounted price. Use the highest priced estimates you get.
Notice Of Trustee's Sale
This is the notice that the homeowner receives telling them that their property is going to the foreclosure sale. By including this document in your short sale package you are letting the bank know that you are aware of the foreclosure process. It also helps put a timeframe on the deal and can light a fire under them, so to speak.
Color Photos
You'll get extra points with the bank by sending them pictures of the damaged and neglected areas of the house. They provide photographic evidence of the low market value of the property and encourages the bank to accept your discounted offer.

The short sale package usually contains quite a lot of foreclosure information. In fact, it's an involved process and essential part of debt negotiation with the bank. The bank will want ample evidence to back up your short sale request for their loss mitigation department as can be seen by the bulleted list. This package contains information that the bank requests from you and your own research on the property including; damage estimates and the homeowner's hardship letter, all of which work to back up your request for a discounted sale price on the property.