Newbie Shortsale Question

Good Afternoon,

I am very green to short sales, but thought Id give one a go. I am working with Wells Fargo on a home with little equity. I was hoping to get some clarification on the following items that the loss mitigation department needs:

1.Current Proof of Income(two recent pay stubs from all mortgagors)

I just need the last two paystubs from both of the owners on the title, correct?

  1. A Letter explaining the hardship

How long is this typically?

  1. Listing Agreement

The couple that I am working with listing has expired. Do they need to get it listed again? If not, do I just get the listing agreement with the previous listing agent?

  1. Signed Purchase Agreement or Sales Contract

Is this the purchase contract that I am submitting?

  1. Seller Net Sheet or Hud-1 Sheet

Is this the Hud-1 of the house when it was purchased by the couple?

Thanks in advance for your input. It is greatly appreciated.


  1. correct
  2. as long as they want to explain their situation.
  3. As far as I know, the listing agreement doesnt have to be current. You just need to show they attempted to. My personal case, Wells fargo mentioned it to me, but was not intheir short sale package they faxed to me.
  4. I belive its the same item, just what you negotiated with the homeowner, but that will change once you start talking to the bank.
  5. No, that is old. This is the preliminary HUD1 you will need to show the same amount that is on the contract and of course showing that the homeowner is not getting anything. (This was not on my version, so I expect another ss package addendum coming from WF eventually.)

Thanks Steve,

Ill keep posting here if you are interested in how it turns out.


To clarify about the HUD-1… it is basically the banks way of saying “Ok, you are paying $100,000 for the home, how much of that are WE getting?” . Because in that scenario with no RE agent involved the bank would only walk away with approx $96k or so, at least in Iowa due to tax proration and sellers fees.

If you do not want a Realtor involved, just tell Wells Fargo that you don’t have a listing agreement. In the hardship letter, you can mention that the borrower tried to sell the house, but couldn’t. Then include the expired listing agreement as documentation.

Thanks again for all of the help,

I am still a bit unclear on a few things:

Purchase Contract Question

As I understand it, I am simply presenting a contract to the hopeful seller. Why do we go through this negotiation with the seller when the bank is going to have the final say anyway?

Preliminary Hud 1 Questions

Can I get this from my private lender? Wont I have to already know how much I am going to offer the bank to get this prelim? Will a private lender make me pay points before I get my hands on this prelim?

Thanks in advance.


You’re negotiation is actually with the bank. The Seller usually doesn’t care what you offer the bank, they just want out of the house. But you must have a signed purchase contract from the Seller. I usually just get them to sign the contract at the 1st meeting, then I fill in the numbers after I’ve done my due diligence (i.e., obtain comps, and sometimes figure out repairs).

As far as the HUD-1 is concerned, there are 3 options:

  1. You can do it yourself. has a HUD-1 you can fill out.


  3. Find a Title Company that will do it for you. That’s what I do.


You the man

thank you much

I too wonder why I need a signed sales contract with the homeowner when the bank is the true desision maker. On my first SS attempt I got everything the lender asked for together. The problem came when the home had to be listed. At that point it is out of your control. Anybody could simply submit an offer to the realtor and all of your hard work will go down the drain.
It is best if you can avoid using a realtor altogether. If asked for a listing agreement/history I now tell the lender that the h.o. has been trying to sell the home themself because the realtors they talked to said the house was to upside down for them to sell.
My guess is that the signed contract just gives you first crack at the deal.

Why do you need a signed sales contract? Because the owner is the one selling you the property. You are merely negotiating down the amount they owe on the property. Just because the mortgage company has a lien on the property does not mean they have the authority to sell the property, shoot, if they did, they’d sell the homes the second a homeowner was late!

At the point the home is listed no one else can write an offer on the property because you already have a signed sales contract. A seller is only legally allowed to sign one purchase agreement as they cannot be contractually obligated to sell ONE home to two seperate people as they can be sued by one or the other for performance.

If it must be listed it is not a complicated procedure, actually, quite easy! What Realtor would not want to receive a small commission for listing a property that already has a buyer with an agreed upon price and does not have to do any marketing, etc.? Also, a lot of times giving an agent the commission will not affect what you can get it for as they base the sales price on the BPO amount and it has nothing to do with net(of course, not always true, but usually).

Thanks all for the great input,

My first shortsale has gone a lot smoother because of it.

I just wanted to update those that are curious on this shortsale:

So far, I have gotten all of the necessary paperwork from the owners. I am meeting again with the owner tomorrow to do a thorough look through of the house to see what repairs are necessary.

I have enlisted the help of an inspector who will meet us at the house. From what Ive read, I should get a written estimate on all repairs to persuade the lender in taking a lesser amount than owed. Any thoughts on this??

Also, I am going to get the owner to sign a blank purchase contract on the house. Is there anything I should tell him to assuage his fears of signing a blank contract? I am doing this simply to speed up the process as they do not have a fax.

Lastly, I am working on an offer to the lender. They owe 175k(just 1 loan) on the house. The house is worth 170k. I was thinking an initial offer of 90k, perhaps??

Let me know what you all think.



Make sure the purchase agreement states that you are making this offer contingent on his/her bank accepting your offer as payment in full on the mortgage. That usually makes the homeowner feel pretty good!

A blank signed purchase contract works good b/c when the bank counteroffers, you don’t have to go back to the owner to get a revised contract. I would put an addendum to the contract that says faxed and copies of the contract constitute a legally binding agreement.

Thanks for the great replies. This has helped tremendously.

As I am working this shortsale, I am starting to wonder when it is necessary to spend money.

Specifically, At what point do I spend money on the inspection on the house? Should I get this right now to justify all of the repairs. Will pictures that I have taken suffice?(I am guessing NO)

At what point do I go and buy the appraisal for the hard money lender>?

And, lastly when should I go ahead and order the title report?

Thanks in advance,


Whether you pay for an inspection depends on your exit strategy. Ex/ if you intend to fix & flip, an inspection would be good. Depending on your comfort level, you could have contractors give you free estimates for repairs you & the borrower found that are needed.

When I turn the contract in to the Title Company, they “automatically” start the Title search. Don’t know if that’s good or bad.

Thanks for the response Rgchamb,

Should I have the inspection included in the shortsale package?

Also, I have met with two hard money lenders who like the sound of my numbers and margins, but are uncomfortable lending because this is my first deal. Obviously, this is a problem as I need to have a prelim and proof of funds in the shortsale package. Any suggestions?

Thanks all,


Include the repair costs in the SS package. If you had an inspection, that will let you know what needs repair. Get the most expensive contractors you can find to give you repair estimates. Also, most hard money lenders have no problem giving you a proof of funds letter. Just submit that letter.

Just wanted to give an update on my first shortsale to anyone that was curious…

I have followed a lot of the advice posted here on this website whichhas made this shortsale go a lot smoother.

I sent the Wells Fargo Loss mitigation my shortsale package. I had the pictures of repairs described in powerpoint. I used estimates from to substantiate the costs of all repairs.

About a week later, I called the bank and was told that my shortsale package arrived too late( 20 days before foreclosure date) and that they needed a minimum of 30 days to review the package. I didnt care for that answer so I called back and talked to someone else who said they would do everything they could to give me an answer to my offer before the foreclosure date. This was a better answer for sure.

Three days before the home was supposed to be auctioned, the bank suspended the auction for 30 days.

It should be noted that the foreclosure was suspended the same day as the BPO. Does this mean our offer was around the same amount as the BPO? The bank would not or could not tell me what the appraisal amount came back at.

Last weekend,my partner and I wanted to get an idea of how much an investor would pay for the home so we held an auction and took bids(which would allow them to participate in the round robin at a date TBD). I dont know if was a great idea to hold an auction on a house we do not yet own, but it did give me a good idea of how much investors are willing to pay.

This is where the deal currently stands. Feel free to comment or critique as this is my first shortsale.


How did you hold the “auction?” Since it was just to test the waters, what did you tell the highest bidder?

We are somewhat at this point in that we have negotiated with the bank to a higher number than we originally intended (newbie mistake I’m sure). Now, before we finalize the deal, we’d like to get an idea as to what the interest would be in the property and the amount someone would be willing to pay. Thanks!!!


The bids on the home were basically a way to see how much interest was in the home. I started off the bidding at a price that would make me a profit of 10k(if the bank accepts my offer). The bids ultimately mean nothing and are not binding.

The advantage of auctioning a home before you own it is that it gives you an idea of how much people are willing to pay for the house and in turn how much more I can offer the bank if they reject my initial offer.

An actual price of the home cannot really be established until the day of the round robin. This is where all bidders that had bid any amount during the weekend of the showing of the home are allowed to advance the bid.

The disadvantage is that you risk losing interest in the auction because their is no sense of urgency. I cannot, for instance, tell any bidders exactly when the home is going to be sold because I am still waiting for the bank to accept my offer.

Hope that helps some