Does seller or investor request short sale package?

Hello folks. I was wondering if you short sale experts could answer a couple of questions for me. I have a lead in PA who desperately wants to get out of his property. He can no longer afford the payment, even after taking on a second job.

He is one month behind, and could pay his November payment tomorrow, Dec 1st. However, he has basically conceded that he will just be right back where he started and simply won’t be able to pay any longer. He already has a condo lined that he wants to rent for $1K/month less than his mortgage. My feeling is he might be willing to abandon the property. I’d like to help him if there’s anything that can be done in terms of a possible subject 2 or short sale.

The house appraised for $300K on the nose as of June 2006. He has refinanced to pay off medical bills from a bad car accident and chapter 13. He now has an 80/20 loan totalling $296K. The house does need some repairs, including replacing a Bay Window, paint, carpet and some other minor stuff.

So no equity, but not far enough behind yet for banks to really listen although he’s certain to go into foreclosure at this rate.

  1. If we were to eye a short sale, does he as the owner need to contact the banks and request a package?

  2. Does it make sense for him to pay his November mortgage payment, or is he better off not paying to improve his case of hardship?

Please advise. I would greatly appreciate any feedback. Thanks.

You could do it either way, but it probably would be better for him to call the bank himself and tell them that he will no longer be able to sustain his mortgage and that he won’t be making anymore payments. I’ve noticed (in Michigan at least) that with skyrocketing foreclosure rates, banks are pretty much ready to play ball in these scenarios. Sometimes the bank will mention doing a short sale without the homeowner ever even bringing it up. Whether the bank does this or not… have the homeowner contact you and let you know. Then get your homeowner a Borrower’s Authorization Form so that you can begin negotiating the short sale on his behalf.

I don’t think that it would make sense for him to pay his November payment, he’s going to lose the house anyway, So I think his money could be spent more wisely, like towards his new condo.

Thank you for your input. I have since spoken with the seller and he is attempting to contact both lenders. Will have to try again Monday as he got nowhere with the automated system. He said he’ll try to request a package in writting as well.

I am wondering if it makes it more difficult to deal with sub-prime lenders than with your traditional banks. His mortgages are now with a company called Saxon Mortgage Services (80%) and GMAC (20%).

Anyway, thanks very much for your feedback. I will post additional progress in the future as I many need a little guidance here and there.

I would suggest that you contact the bank instead of the homeowner. Take control, you’re the expert. When you contact the bank and after your authorization is on file, you need to confirm the loan balance, amoumt of payments in arrears and where you fax your short sale package. You don’t need to request a package, you just need to put a package together and fax it to the proper individual in loss mitigation.

Since your homeowner’s payments are not very behind, it’s possible that the file isn’t even in the loss mitigation department yet and is probably still in collections department. In some cases, if the bank can verify that the homeowner will not be making any further payments, the file can be sent to loss mitigation quicker. I would also suggest that the homeowner save his November payment monies if he’s going to lose the house anyway.

This sounds like an excellent short sale opportunity. Let me know how things go.

  • Short Sale Mike

Thank you Short Sale Mike for your comments. Here’s a quick update on things. The owner got in touch with Saxon Mortgage and requested a short sale package. He was asked to submit a Short Sale request form, a hardship letter, and the amount he wants to sell the house for.

Now, I am not experienced in short sales as I’ve been mostly doing rehabbbing/wholesaling. But I had never heard of a short sale request form. In fact, lender said the owner could get this form from a realtor.

As for the hardship letter, I am an advertising professional and fancy myself a good “creative” writer, so I will take the helm on this.

The mortgages (80/20) are $240K and $56K respectively. The house was appraised for $300K in June, but needs repairs. I figured the second mortgage will be the easier to negotiate. How do you determine what to ask for the first one?

Thanks again for your help, this is truly a wonderful resource.

Just FYI. Just did one with Saxon and they were pretty smooth to work with so it should be a good first one for you to learn.


Ok…so here’s the question. Let’s say the house appraises at around $280K as-is, considering repairs. I can understand GMAC agreeing to a settlement since they are second in line with a $56K mortgage. But what would be Saxon’s incentive?

Since I am not in Pennsylvania, I was looking to place an ad and try and get another investor involved and then get an assignment fee. I know you typically can’t assign contracts in a SS, but I figure we can do a double closing. How much equity would there need to be in order to make this attractive to another investment?

The reason I ask is because I have also thought about asking the owner to deed the house over and instead have him request a forebearance agreement. Then, it would buy some time to lease-option the home and perhaps cash flow a little bit every month before selling in 2-3 years.

Do you feel that Saxon would discount the $240K mortgage? And if not, is it still a good opportunity if GMAC discounts from $56K to say $3 - $5K? I don’t think I have enough liquid cash to flip the property myself which is why I need to get another investor involved or look into the lease-option route. Any thoughts?

Basically if the property is worth MORE than the mortgage balance
then guess what?? Not a good candidate for SS.
The 1st has absolutely no motivation to do SS at this time…

Keep looking…

Yes, banks will still short even if the value is more than the amount owed. These banks DO NOT want REOs. I was just at a mortage bankers conference and attended a workshop where REOs were discussed in detail. It was made quite clear that the banks will do just about anything to avoid acquiring another REO.

I was just recently involved in a SS with a $340k 1st and a 95K 2nd with a home value of $430k. The second took ZERO and the first accepted $280k becasue the closing would take place before year end. They didn’t want another REO!

When you calculate the carring costs, comissions, etc… you can quickly see why a bank will still short even when the owed amount is less than the estimated value. Go read “Economics of REO 2006” in this newsletter, and then run the numbers.

Saxson Mortgage has requested a Short Sale Request form. I’ve always been under the impression that you can call and request the package and they would send it to you with all necessary forms to submit.

Can anyone point me to where I can find this form?

Normally your right. You should be able to call them for a package to be sent from Their
loss mitigation/home retention dept. over to you or the homeowner. You need to call
them back and ask for a supervisor if the reps are not well versed in the proceedure.

The other option would be to write a short 1 paragraph letter titled “Short Sale Request” and fax it over to them along with the borrowers authorization, loan number, name, address and Your contact info. You should follow up every 48 hrs to check receipt & progression as you move forward. Persistance is one of the major keys in getting package in your hands and approved in a timely manner.

Mike, first, thank you for your responses they are excellent reading. Now, how did you get the 2nd to take zero? Thanks, Ed

What was their value of the property when they did BPO/appraisal?? I can guarantee it was
no where near the 430k mark!!! Was their fraud involved, did the property need work?? There had to be some pretty extinuating circumstances in order for them to take 150k loss…
Most REO’s sell within 90-180 day period for pretty close to the asking price… Even with 6months
carrying costs/comissions, etc. They would make out better foreclosing than taking that kind of discount…

In the case of this deal, the first mortgage agreed to wait until the redemption period was over so we could wipe out the second. Then the next day the first accepted $280,000. The house was in perfect condition and there was no fraud.

I had a similar deal last year, the house was worth $525,000 and in perfect condition. The bank agreed to accept $396,000 and I was able to sell it the same day we closed for $500,000.

My best deals to date have come from high priced homes in great condition. It doesn’t happen all the time, but it does seem to happen more in the last quarter of the year (for what it’s worth).

I have read all the information posted in the forum, but one question that I didn’t see anyone mention is does the lender come after the homeowner for the discounted amount. ShortsaleMike you mention a situation with a property being discount for $155k, $280 on the lst, and zero on the second. Did the lender waive its right to a deficieny judgement against the homeowner or did they seek a deficieny judgement for the shortage on the actual amount received verus amount that was due? I have read that after a short sale the lender can either pursue a deficiency judgement or issue a 1099 to the homeowner is that true?

Hi Shortsaleant. You are correct that banks can pursue a def jud or issue a 1099. But, each case is different. You would need to ask what their policy is. Sometimes investors will include some language in the offer that says “Bank accepts this offer as payment in full and agrees not to pursue a deficiency judgment…”

In California, the second can only 1099 the seller and they cannot get a deficiency judgment since we are a trust deed state. Also, if the seller can show that he/she was insolvent at the time, they can waive the 1099 debt relief.


Yes the lender has the right to issue a 1099 or pursue a deficiency judgement. Whether they do or don’t is really the meat of the matter. Sometimes they do neither. Certain lenders like HSBC demand that the seller sign a note before they will approve a short sale.

Congress is contemplating a change in the tax law to eliminate this “pahntom Income” provision. I think that they will and it will open the flood gates for short sales.

Hello group, I have a question for Satarnag. I did a search on whether Georgia is a trust deed state, but I couldn’t find anything. Where will I find that information from?

This goes to Marketingmaster. What do you mean by HSBC demand that the seller sign a note before they will approve a short sale? I have them as my second loan mortgage, and I just signed papers with an investor to start a short sale.