Keller Williams Realty



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Pre-Listing Information Package

Residential Property

Short Sale Transactions

By

Randy Musgrove, Realtor, GRI

Lic# 01423918

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Integrity, Recognition

Community

Table of Contents

1. Short Sale Transactions

a. What is a short Sale?

b. Who is the Lender?

c. How do you qualify for a short Sale?

d. What information is needed for a short sale?

e. What is a Hardship letter?

f. What are the examples of a hardship?

g. What are the Tax and Credit implications of a Short Sale?

2. The Process of a Short Sale

a. Step 1-4…………………………………....page 5

b. Step 5-7…………………………………....page 6

c. Step 8-9……………………………..……..page 7

d. Step 10-12……………………………..…..page 8

e. Step 13………………………………….....page 9

3. Third Party Authorization Form…………….…….page 10

4. Short Sale Financial Worksheet…………………...page 11

5. Hardship Letter Outline and Sample Letter……….page 12-13

6. My Biography……………………………………..page 14

7. About Keller Williams Realty…………………….page 15

8. WI4C2TS………………………………………….page 16

9. Preparing Your Home for Sale……………………page 17

a. Preparation for Showing

b. Showing the House

10. Factors that DON’T affect the Value of your Property

11. Activity vs. Time

12. My Marketing Action Plan for Your Home

13. Appendix 1- HAMP & HAFA Programs………...page 23

Short Sale Transactions

What is a short Sale?

A Short sale, simply put, is when the owners owe more on a mortgage than the current market value of their property and the lender agrees to forgive a portion of the loan to align with the market.

Who is the Lender?

The lender is the entity that originates and funds the loan. These entities include mortgage/lending companies, savings and loan associations, banks and credit unions. Most loans originated by mortgage brokers are sold off to the secondary market such as FNMA (Fannie Mae), or FHLMC (Freddie Mac) or GNMA (Ginnie Mae).

How do you qualify for a short sale?

A short sale is a contract with a lender and like any contract, it must be negotiated and agreed to between parties. Your lender is not obligated to enter into or agreeing to a short sale. The lender will determine, based on the information supplied by the seller, whether or not your property qualifies for a short sale.

What information is needed for a short sale?

The seller will ask for at least the following:

2 years of W-2’s, 1099’s and tax returns Hardship letter

2 months bank statements Financial Statement income vs debt

Listing contracts w/a Realtor Realtor assessment of value

Purchase offer(s) if any Mortgage statements 1st, 2nd & ?

Home equity lines of Credit (Heloc) Any other properties owned or mortgaged

Brokerage Statements Any other Bank accounts (savings, IRA’s)

What is a “hardship” letter?

Probably the most important document you send. The owners must be able to prove that a significant hardship exists that is the cause of the short sale request. The sadder the better and it should be handwritten if possible. Once a hardship is proven, it makes the lender more apt to approve the short sale.

What are examples of a hardship?

* Job loss or reduction of Income where prospects of being able to recoup past income levels are not probable.

* Job transfer (including Military reassignments) to another area and it is not feasible for the seller to rent or maintain more than one mortgage

* Medical Disability causing a significant or permanent reduction in income or causes a relocation

* Death in the family and loss of an income producing member of the household

* Divorce, when neither spouse’s income alone can meet the mortgage payment without significant debt hardship.

* Your mortgage payment(s), due to an adjustable interest rate loan, has increased to an amount that is financially impossible for the household to pay and a loan modification or loan refinance is not possible.1

* Destruction of property, either natural disaster or accidental where avenues to rebuild are not available via Home insurance or financing and property must be sold at highest dollar.

* Miscellaneous issues that come up in our daily lives that generally cause the inability of meeting the obligations of your mortgage contract. Each one has to be evaluated by you, your Realtor, Attorney and CPA.

What are the Tax and Credit implications of a Short Sale?

It is extremely important to seek the advice of your Attorney and Tax accountant to determine the tax and credit consequences of the short sale. These professionals may well be able to prevent the lenders from seeking recourse to recoup the losses the lender incurs in forgiving a portion of your loan.

1. Interest rate increases for variable “Teaser” rate mortgages is currently the most prominent reason for foreclosures and short sales in the country.

The Process of the Short sale

Step 1. Determine if you need a short sale

When circumstances occur that cause you to believe that you need advice regarding your home, seek the advice of your Realtor, Attorney and CPA. Each of these professionals will listen to your circumstances and refer you to the appropriate advisor. In many cases of a short sale, all three of these professional may well work hand in hand to resolve your situation. Once it is determined that a short sale is the correct avenue for your situation, meet with your Realtor to list your property.

Step 2. Interview for a Realtor

Contact a Realtor that has been through the short sale process before. Interview the Realtor and ask him about his experience in Short sales. Many Realtors shy away from the short sale as it requires timely execution, expert negotiation skills, usually pays less than average Realtor fees and can be time consuming if not handled correctly. Set up a time to meet with the Realtor and be ready to pour your heart out to him/her. Honesty and frankness is imperative on all sides.

Step 3. Property analysis

Once you have selected a Realtor, he should set out to preview your property(s) condition, select comparable sold, active and pending properties in your area and with your consent, determine a price to market the property. A Residential listing agreement and various other disclosures regarding Agency, short sales advisories and other normal listings documents should be prepared and agreed to. Once all the documents are signed, you will be “On the Market”.

Step 4. Gather documentation

Gather together all of the documents listed that need to be sent to the Lender (see “Information needed for a short sale”). Keep a copy for your self and a copy for your Realtor. Be sure they are legible as they may be faxed several times. He will need to Put these documents into a package that will be sent to the lender via Fax or by Mail.

Step 5. Your Hardship Letter

Prepare your Hardship letter. State the nature of your hardship and a general timeline of how the hardship occurred. Be sure to be able to back up any statements you make with documentation should the lender ask for it. Describe the negative effects the hardship has created for your family and the devastating results that will occur if the short sale is not approved. Handwrite this letter if possible but if handwriting is not legible, use worddoc or typewriter. Feel free to add to your letter at a later date if further hardships occur that may increase your chances for approval.

Step 6. Your Financial Statement

You may use the attached financial worksheet, but be advised that the lender may require you to fill out “their” worksheet as well. For now however, this should suffice. Be sure to list all your accountable income only (income reported on your tax returns). That includes your job wages, child support, trust income, alimony or other miscellaneous “accountable” income. List all your debts, current mortgages, credit cards, car payments, revolving accounts, child support and any other monthly debts, including utilities and daily living expenses. We need to show the lenders the impact your mortgage is having on your family’s daily lives.

Step 7. Submission to the lender(s)

Once you have all the documents mentioned above, provide them to your Realtor. He will submit them to the lender(s)2 along with an authorization letter, signed by the sellers allowing your Realtor to convey information on your behalf. Your lender will not communicate with the Realtor without this authorization. At this point, your Realtor will be marketing your property and showings for your home will have begun. Your Realtor will be in communication with the lenders to verify that they have received all the documents and find out if they require any more information or any questions. The lender will review the documents and may ask for more information, but most probably, they will want to wait for a purchase offer before things move any further.

2. If you have more than one lender, i.e. and 2nd or a 3rd mortgage, consent must be obtained from these subordinate’s first, before the 1st mortgage will give their consent. The subordinate lenders (2nd & 3rd’s) usually will accept 10% of the balance owed to them however, the 1st mortgage will usually offer them a lesser amount. Here again, your Realtor earns his money by convincing the different lenders of consequences of foreclosure if the lenders do not compromise. They could receive nothing if there is no agreement. Obviously, if the lenders holding 1st and 2nd’s are the same lender, it makes everyone’s job simpler.

3. A few lenders may not keep any documentation unless there is a bona fide offer included. However, most will accept your preliminary documents and wait for an offer. It is false that you have to wait to be in default and that you must have an offer before submitting documents for a short sale. Allow your Realtor to determine exactly what the lender requires.

Step 8. Marketing your Property

As in any listing, offers should be coming for at least every 10 showings. If you are getting showings, but no offers, if could be the condition of the property. Your home must be in good showing shape at all times, as with any property for sale. The better the showing shape, the easier it will sell. If you are not receiving showings, the price may be too high. Your Realtor may have to review the comparative analysis on a regular and meet with you about the price.

Important note here: As a short sale, your main goal is to get an offer and do not let your reluctance to lower your price inhibit this. The seller is not going to receive any proceeds on a short sale so allow your Realtor to price the property aggressively to get the offers. And if the condition of the home is inhibiting this, the seller and the Realtor must evaluate what improvements they must make in the property to make it more marketable to buyers. It must be easily accessible to other Realtors (i.e. lockboxes). Realtors sell the homes, get as many to view it as possible.

Step 9. You have an Offer(s)!! Now, Patience!!

Once you have an offer, your Realtor will submit the offer(s) to the lender along with a HUD-1 of the highest offer (the HUD-1 shows an estimate of all costs associated with the sale and estimates how much the lender will net from the sale) and begin negotiations on your behalf. At this point, the lender will again review all the documents and may ask for more updated versions of payroll checks, and bank statements. A negotiator/closer will be assigned by the lender to handle your case. Here is where the patience of Job is required. This period can be up to 2-5 weeks before the negotiator responds. Lenders are currently inundated with short sales and foreclosures and your file will go to the bottom and you must wait your turn. Some banks are better organized than others but none of them are fast. Remember…patience. Your buyer must have patience as well. Be sure your Realtor has properly informed the buyer’s agent of the time periods to expect. Many short sales lose buyers because of these long periods of waiting, and waiting and waiting. The listing agent must be realistic with all parties and never promise any approvals are forthcoming until they actually arrive. Remember, Patience and optimism are the keys to a successful short sale.

Step 10. Appraisal

The lender, upon receipt of the offer(s), will set up an appraisal or a BPO. An appraisal is where a certified appraiser comes to the property and does a normal exterior and interior appraisal. A BPO is a Broker Price Opinion and is usually done by a third party Realtor and may or may not include the interior. The Listing Realtor should accompany the BPO Realtor or the Appraiser in order to assure the person inspecting is aware of any issues leading to the price of the offer. If the appraisal is more than the offer, and often it is, your lender may expect the seller to continue to market the property for a higher offer. If your listing agent is confident that the offering price is the highest and best, regardless of the appraisal, it is the Realtor’s fiduciary duty to point out to the lender the reasons for the offer and substantiate that offer to the lender and explain to the lender that further marketing will not significantly increase the price, in fact, it may cause a lower price, loss of the current buyer and lead to foreclosure.3

Step 11. Lender Consent

Once a lender negotiator (and usually a lender committee) and your Realtor agree to accept the highest offer (the most the lender will net from the sale) the lender will send a consent letter to the Seller (via the Realtor). It may require notarization. At this point, you have succeeded in the short sale process and should be able to close by the specific date the lender will require. Escrow cannot extend beyond this date.

Step 12. The closing process

At this point, the normal documents should be exchanged between buyer and seller including all property disclosures, inspections and any major repairs agreed to in the purchase agreement. Since the Seller is not going to net any proceeds, getting the seller to fix anything extra is not likely. Repairs to the property should be addressed in the offer and early in the process. If property repair problems arise after consent has been given that were not evident prior to lender consent, the repairs may be negotiable with the lender, but again, not likely. It is imperative that both the listing agent and buyer’s agent perform their Agent Visual Inspections prior to listing the property and prior to the buyer’s agent submitting an offer. Agents must be aware of any conditions that may require repairs and must be fully disclosed to

the sellers and the buyers. Do not go through all the work of a short sale only to lose the sale at the final step!

Step 13. Congratulations, the Property is Sold

Once Escrow notifies all parties that recording has taken place with the county, you owe yourself a big sign of relief. You have successfully sold or bought a home via the short sale process. For the seller, you have met your responsibilities with the lender and although your credit will be impacted negatively, (but not as severely had you allowed the property to go into foreclosure) you have acted in the most responsible manner possible and your creditors will recognize this in the future. Congratulations!!

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My Biography

Randy Musgrove

(661) 733-2004

Keller Williams Realty Palmdale, Ca 93551

1401 Rancho Vista Blvd

Palmdale, California 93551

WWW.

Email: rmusgove@

Contact Information: (661) 733-2004 Direct

(661) 866-631-3075 Fax

(661) 265-1068 KW Office

Business Affiliations

• Member Greater Antelope Valley Assoc of Realtors GAVAR

• Member Southern Regional Association of Realtors SRAR

• Member National Assoc of Realtors NAR

• Member National Association of Realtors, Commercial Real Estate

• Member California Assoc of Realtors CAR

• Graduate of The Realtor Institute GRI

• Member Lancaster West Rotary Club 23 years

Real Estate transactions are extremely personal and I take it very seriously and humbling when an individual or family asks me to represent them in probably their most important asset, their home or business.  I have been a businessman in the Antelope Valley for 24 years and I can assure you the utmost professionalism.  I specialize in residential real estate but I am also experienced in Vacant land and Business Opportunities, representing buyers and sellers. I am active in our community, particularly Lancaster but I call home, The Antelope Valley .

Personal

Personal

My wife, Andrea, and I have resided here in the Antelope Valley for the past 23 years, raising our children here in the local schools. We now have six absolutely wonderful grandchildren and are looking forward to more! We enjoy community service activities and we are actively involved in the Lancaster West Rotary Club (since1985) and the Lancaster Chamber of Commerce. I enjoy golf, bowling, fishing and revel in all sports.

ABOUT KELLER WILLIAMS REALTY

Often, we judge the caliber of people by the company they keep – this is why I would like to tell you a little bit about Keller Williams Realty and my office within the Keller Williams system.

Keller Williams® Realty was founded in Austin, Texas in 1983 with the specific premise that buyers and sellers deserve the best service for their real estate needs. For more than 17 years that founding premise has been a major factor in the continued growth of Keller Williams® across North America. Two visionaries lead Keller Williams® Realty – Gary Keller, founder and Chairman of the Board, and Mo Anderson, Chief Executive Officer.

Because each Keller Williams® Market Center has grown within its respective community, Keller Williams® real estate agents have intimate knowledge of each community's character, mood, and growth potential. Due to the fact that the majority of Keller Williams® Associates live in the communities and neighborhoods they serve, they are eager and capable of tackling unique challenges that families encounter when selecting new homes.

At Keller Williams® Realty, we are Real Estate Consultants. What this means is that we build fiduciary relationships with our clients. A fiduciary is someone who represents your best interests.

We are a profit sharing company where associates are in partnership relationships with the owners; this means that everyone at Keller Williams® Realty wants your home to sell because everyone benefits.

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The Keller Williams culture is based upon a belief system that is summed up by this acronym: WI4C2TS:

Win-Win, or no deal

Integrity, do the right thing

Commitment, in all things

Communication, seek first to understand

Creativity, ideas before results

Customers, always come first

Teamwork, together everyone achieves more

Trust, begins with honesty

Success, results through people

Listing property with KELLER WILLIAMS® means receiving the following benefits:

Experience… Integrity… Skill… Effectiveness… Advanced Techniques and Aids… Intimate Knowledge of the Marketplace… Financial Counsel and Assistance.

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Preparing Your Home For Sale

 

|With a little effort on your part, your home can be sold more quickly and at a better price. The following tips have proved invaluable to |

|owners and are worth your special attention: |

| |

|Preparation For Showing: |

|First impressions are lasting!  The front door greets the prospect.  Make sure it appears fresh and clean. Paint the trim, if necessary.  |

|Keep the lawn trimmed and edged, and the yard free of refuse. Reseed and fertilize the lawn, if necessary. Weed the gardens, and add |

|mulch. Deep green grass makes a lasting impression. In winter, be sure snow and ice is removed from walks and steps. |

|Decorate for a quick sale.  Faded walls and worn woodwork reduce appeal.  Why try to tell the prospect how your home could look, when you |

|can show him by redecorating?  A quicker sale at a higher price will result.  An investment in neutral new kitchen wallpaper will pay |

|dividends. |

|Let the sun shine in.  Open draperies and curtains and let the prospect see how cheerful your home can be.  (Dark rooms do not appeal) |

|Do the windows and window screens work well and look good? Have the windows spotless. |

|Are the appliances sparkling clean and operating properly? |

|Fix the faucet!  Dripping water discolors sinks and suggests faulty plumbing. |

|Repairs can make a big difference. Loose knobs, sticking doors and windows, warped cabinet drawers and other minor flaws detract from home |

|value.  Have them fixed. |

|From top to bottom.  Display the full value of your attic, basement and other utility space by removing all unnecessary articles.  Brighten|

|dark, dull basements by painting walls and adding brighter light bulbs. |

|Safety first.  Keep stairways clear.  Avoid cluttered appearances and possible injuries. |

|Pack excess linens and clothing to make closets look bigger.  Neat, well-ordered closets show the space is ample. |

|Bathrooms help sell homes.  Check and repair grout in bathtubs and showers.  Make this room sparkle. Don’t let the Handy Man add gobs of |

|caulking when grout is what you need. |

|Arrange bedrooms neatly.  Remove excess furniture.  Use attractive bedspreads and fresh looking window coverings. |

|Remove or mention to your realtor any attached items that are not included, such as special chandeliers, shelving or garden plants. |

|Be familiar with similar, possibly competing, homes on the market. |

|Ask your realtor for a list of ways to improve the marketability of your home without wasting time and money. |

|Can you see the light?  Illumination is like a welcome sign.  The potential buyer will feel a glowing evening when you turn on all your |

|lights for an evening inspection. |

|Disclose any structural defects such as roof, foundation or wiring problems. |

|Start looking for your new home. Do you know what you want in another home? |

|Think about what must be done to prepare for your upcoming move. |

| |

| |

|Showing The House: |

|Whenever possible leave your house for showings. If not, follow these tips: |

|Three's a crowd.  Avoid having too many people present during showings.  The potential buyer will feel like an intruder and will hurry |

|through the house. |

|Music is mellow, but not when showing a house.  Turn off the blaring radio or television. Let the agent and buyer talk, free of |

|disturbances. |

|Pets underfoot?  Keep them out of the way--preferably out of the house. |

|Silence is golden.  Be courteous but don't force conversation with the potential buyer.  He wants to inspect your house, not to pay a |

|social call. |

|Be it ever so humble.  Never apologize for the appearance of your home.  After all, it has been lived in.  Let the trained agent answer any|

|objections.  This is his/her job. |

|Remain in the background.  The agent knows the buyer's requirements and can better emphasize the features of your home when you don't tag |

|along.  You will be called if needed.  Allow the buyers to take "psychological possession."  |

|Why put the cart before the horse?  Trying to sell furniture and furnishings to the potential buyer before he has purchased the house often|

|loses a sale. |

|A word to the wise:  Let your Realtor discuss price, terms, possession and other factors with the customer.  They are eminently qualified |

|to bring negotiations to a favorable conclusion. |

|Use Keller Williams Realty.  We ask that you show your home to prospective customers only by appointment through this office.  Your |

|cooperation will be appreciated and will help us close the sale more quickly.  |

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FACTORS THAT DON’T AFFECT

THE VALUE OF YOUR PROPERTY

The value of your property is determined by

what a BUYER is willing to pay in today’s market

based on comparing your property to others

SOLD in your area.

Buyers ALWAYS Determine Value!

Your Realtor®



Activity Versus Time

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• Timing is extremely important in the real estate market.

• A property attracts the most activity from the real estate community and potential buyers when it is first listed.

• It has the greatest opportunity to sell when it is new on the market.

My Marketing Action Plan

For Your Home

❖ I will maximize your homes exposure by listing in our local MLS and the to the over 2500 real estate agents in our system. I am also a member of SRAR MLS, the Southern Regional Association of Realtors so your home will also be exposed to the 1000’s of Agents in Southern California. 80% of our buyers are coming from this region!

❖ I will advertise your property in our local newspapers and the Keller Williams Home Buyers Guide (the Red book).

❖ Don’t forget, your yard sign is your most advantageous advertising media.

❖ I mail JUST LISTED postcards to generate buyer interest.

❖ I send out a flyer to our contacts featuring Current Listings and Just Sold Properties.

❖ I market my listings online at , , , , , , and

❖ Buyers receive total information, including photos, on your home 24 hours a day.

❖ I will prospect for buyers by knocking on doors in your area weekly.

❖ I will personally hold OPEN Houses to generate buyers and neighborhood interest as needed.

❖ I protect you from unqualified Buyers and the risks and hazards that can crop up in escrow.

❖ I protect your $$ during negotiations.

❖ I fiercely protect your equity in both the marketing and appraisal processes.

❖ I provide you with expert pricing so that we know we are priced at the most optimum price for your home.

❖ I communicate with you regularly through out the process.

❖ I will get your home SOLD!

Appendix 1

The Home Affordable Modification Program HAMP

April 5, 2010, the federal government put into service the Home Affordable Modification Program or HAMP. With this program, a homeowner may apply to their lender for a loan modification to where the lender, if approved, would lower the homeowner’s mortgage payment to no more than 31% of the homeowner’s gross income. Approvals for loan modifications with this program have been somewhat successful with about a 20% success rate.

In this program, lenders must give the homeowner the opportunity to apply for the modification, especially if that bank received funds for the Troubled Assets program or TARP. 90% of the lenders have adopted some sort of HAMP program in an effort to curb the number of foreclosures.

Lenders will give the homeowners, if preliminarily approved, a trial period of reduced mortgage payments, generally 3 months. If the homeowner meets his payment obligations, they may be approved for the permanent modification. During the trial period however, there may still be a chance for disapproval if the lender determines the homeowner has the ability to make the original mortgage payment and does not have an undue hardship as originally considered.

There are many variables for approval and disapproval under HAMP and it is important for the homeowner to be sure to supply a complete package required for the application and to continually follow-up with the lender to assure they have all the necessary paperwork they need to process your file. Banks are run by humans and the incredible flood of applications open up a huge crack for lost documents so you have to be diligent and consistent with the lender to insure the lenders cooperation.

Enclosed please find the Request for Modification form which also happens to be the form for when you decide the short sale is the proper route to take. That is the Home Affordable Alternatives Program or HAMP.

The Home Affordable Alternatives Program HAFA

Along with the HAMP Program, should the homeowner be denied for the loan modification or fail to meet the conditions of the trial period, in most cases, the homeowner will have the option to surrender their property via a Short Sale or a Deed In Lieu of Foreclosure.

Should the homeowner decide a short sale is the best route, and we have already discussed those steps in the beginning of this brochure, there are a few other incentives for the homeowner to consider.

With the HAFA Program, the lender will begin the process immediately of approving the short sale prior to receiving an offer on the property. It is advised that you list the property as soon as possible and obtain an offer also as quickly as possible but in some cases you may receive approval from the short sale lender at a price they will pre-determine.

Also with HAFA, the homeowner may be offered a moving allowance of up to $1500 and the loan servicer may also receive up to $1500 for allowing the homeowner to pursue and close the short sale. There are several forms that will need to be submitted along the timeline of the process. Your Realtor and your lender will guide you along as the process continues.

One important note, in order to apply for the HAFA program, the homeowner must have pursued the HAMP Loan modification first or at least some other form of a loan modification request.

In both the HAMP and HAFA programs, I think the theme of consistency a never give-up attitude and continued follow-up with the lender will increase your odds of success and your Realtor is an important piece of this puzzle. Be sure your Realtor is aware of these two programs and that you are confident he can guide you thru this process.

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