Short Refinance Bootcamp Part 5

Comments (41)
August 1, 2008

How your prepare your Short Refinance application package is a crucial step when looking to get an approval with the fewest number of delays possible. The Short Refi process is not fast in any way/shape/form so doing all that you can to grease the tracks is a good idea.

In this special edition video of Short Refinance Bootcamp you’ll learn why the people at your mortgage company will give you first class service when you prepare a complete and organized package the FIRST time. You’ll also lean what goes into building such a package from the ground up.

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41 Comments, Comment or Ping

  1. Eric Veronica

    When submitting a short sale package are you supposed to include the tax returns, bank statements and income for the current homeowner or for the potential buyer.

  2. Eric - All the documentation that goes to the bank taking the short is info pertaining to the homeowner selling the home. Not the buyer buying it. The ONLY thing that needs to come from the buyer in most cases is the Purchase Agreement Contract (or Option Contract) and a preapproval/proof of funds letter.

    The standard package consists of:

    1) Fax Cover Sheet
    2) Hardship Letter
    3) Authorization to Release Information
    4) Contract (Purchase Agreement or Option Contract)
    5) Preapproval/Proof of Funds Letter
    6) Estimated HUD One Showing Net Figures to all banks taking losses
    7) Financial Sheet (either standard one or one supplied by the lender taking the short on their own form)
    8 ) 2 Most Recent Pay Stubbs from All Borrowers
    9) 2 Most Recent Bank Statements from All Bank Accounts
    10) 2 Most Recent Tax Returns for All Borrowers

  3. Melanie

    Learn how to put together a complete submission package so your file will move along the daily chain and the offer will get approved.

  4. Eric Veronica

    One of the requirments for a short sale is a listing agreement. I asked a junior negotiator what to do if the property is a FSBO and he responded with … “you need a listing agreement.”

    The problem is that I am a loan officer and not a realtor. Am I going to have to find a realtor to sign this listing agreement. Could I get in trouble for signing the listing agreement myself. Since the home will never get sold anyways does it matter if hte person who signs the listing agreement is not a realtor. Will they even check that it is a valid listing agreement.

  5. As I am a licensed agent, I don’t have this problem.

    If I DID have this problem, it a) would motivate me to get my real estate license, and b) cause me to seek a relationship with a realtor that is willing to help you out and get you a listing agreement.

    I know that some people will pull us “stock” listing agreements online and do up one that is fake. This is not usually a good idea. While it usually would meet the requirements of the bank as a check in the box to get the package going, it opens you up to massive liability. Not just from a fraud charge (not likely) but from something coming down on you for representing yourself as a licensed agent when you are not.

    They also may require a copy of the listing ticket to prove that the home is listed on the MLS. You won’t be able to get that at all without a real agent involved.

  6. Eric Veronica

    Is there a reason why you have to write the low ball purchase contract as an LLC or can I just have it done as an indivicual?

  7. Eric,

    You can put the offer in as an individual. Because I’m working these deals from so many different angles in an effort to create flexibility, having the buyer be an LLC is a strong advantage.

    I’m a licensed agent, and it would come across as weird if the name of the buyer and the name of the real estate agent/negotiator was the same on the docs forwarded to the bank.

    An LLC gives me a level of privacy.

  8. Brad Troendle

    Brian-

    Wouldn’t creating a listing and then a purchase contract without the intent of actually selling it create a fraud issue all together.

    I was thinking, if I got an appraisal done on my borrower and it came in at 300k and the current loan was 400k, I could submit package as a short refinance and replace the buyer offer with the preapproval for the refinance from another bank.

    Any suggestions on that approach?

    Your series are by far the best education piece I have seen in regards to our industry. Would you be willing to accept payment to tweak the video so as it appears that I hired you to prepare so I can offer it to my clients and possible future loan officers.

  9. Eric Veronica

    Is the property supposed to be listed on the MLS when you consider the home for a short sale. A couple of the lenders short sale informational packets said that the property should be listed on MLS. In your experience is this necessary?

  10. Sometimes this is a “hard” requirement that the bank will not waive. Sometimes they will waive it if you give them an explanation that “The seller is so upside down they tried to sell it FSBO…that’s why it’s not listed.”

    Some banks will accept that. Others will not. I’ve never had to deal with it as I list all the homes I’m involved in if needed under my license.

  11. Eric Veronica

    So if someone comes to you and says they want to do a short refi you still list the home on the MLS even if they are not interested in selling? They only want to try to do a short refinance?

  12. Possibly. The dummy offer would be an Option Contract from the Seller to my LLC. I would work it as double-close short sale in a short refi scenerio. So Seller would Option Contract the property to my LLC which would then look to list the home.

    Of course, the LLC would list the home with me. So it would show as listed in the MLS. I would also get a standard listing contract from the original seller, if that was the piece of paper that they were looking for in the application package.

    I tend not to fight with the banks over paperwork. I just find a way to get them what they are asking for. That makes it a lot easier to get to “yes”.

  13. Eric Veronica

    OK let me get this straight….I am confused on the double-close short sale in a refinance scenarion. Are you referring to a scenario where the LLC actually buys the home and then does a same day simultaneious close selling the property back to the intial homeowner and initial seller. ( I am famililar with post “how you made 52k in one hour”)… Is this similar to what you desciribed in that post but in a refinance scenario.

  14. Eric,

    I set the entire deal up as a double-close short sale from the beginning. A Short Sale is our backup plan.

    If the bank REFUSES to work with us on a short refinance, and the homeowner still wishes to avoid a foreclosure (usually the case) then a short sale is a method of last resort. That being the case I set the deal up as a short sale from day one, hoping that a short refi can be approved. If not, we default to short sale.

    So I get an Option Contract from the Seller to my LLC from day one and start processing as a short sale. My offer is always about 55% of the current market value. I wait for the bank to counter back or reject the low offer.

    I then as “what would you take” and get a number. I see if I can make THEIR number match up to the net number I can get them in a short refi. If they match, I go back to the bank with “That buyer that put the low offer wouldn’t go up to the figure you said you need, but thank God, we just found out the homeowners themselves qualify for one of these government bailout loans and this “short refinance” will net your investor MORE than what you said you needed. I’m faxing the paperwork over, please forward it to the backing investor on your end.”

    I wait for a response. If they say “Yes” then we move forward with the short refi. If they say “No” then we switch back into short sale mode. If the bank’s number is too high I may feel it’s not worth working the deal and I give the homeowner the bad new. If I can still get the deal done and at least collect a commission as a token, then I usually keep the deal moving as a short sale.

    When I start working with someone, there are about 5 possible outcomes depending on the banks positioning and the homeowners ability to get new financing. I’m very flexible.

  15. Eric Veronica

    Brian,
    I have been working with homeowners who are current on thier mortgage payments and are not interested in selling so I guess my situation is a little different. In your last post you said

    “I wait for a response. If they say “Yes” then we move forward with the short refi. If they say “No” then we switch back into short sale mode. If the bank’s number is too high I may feel it’s not worth working the deal and I give the homeowner the bad new. If I can still get the deal done and at least collect a commission as a token, then I usually keep the deal moving as a short sale.

    Is this comment referring to the homeowner selling the property to a different third party or selling the property to the LLC and then the LLC selling the home back to the homeowner in a same day close. I suppose my overall quesiton is there an option for the homeowner to stay in the home if the numbers work but the lender turns down the short refinance. This is assuming the numbers work and selling the home is our of the question for these homeowners. I am also assuming that I went about the short refinance by starting with a short sale (your method).

  16. Eric,

    If the lender “anti short-refi” and refuses to do one, but WILL approve a short sale, and your people want to stay in the home (they all want to stay in the home) then they are in a trick bag.

    The only way to make this happen is if the homeowner sells to an “investor” (non-family member) who is willing to rent the home back to them until they can repurchase this.

    This is known as an “angel investor” and there are not many of them left.

    Most investors won’t touch this with a ten-foot pole. The problem is that so many of the homeowners “forget” the deal when they can’t afford the rent then go cry to the TV reporters who paint the investor as the “evil” scammer.

    The homeowner lies and says that “they never knew they were selling the home…they thought it was a loan all along” which is a bunch of BS…but see who the public believes when the “Hall of Shame” reporters show up at the investors door. Talk about guilty until proven innocent.

    It tends to be too much risk and too much hassle for investors and you won’t find many that will do it anymore. I sure wouldn’t.

  17. Eric Veronica

    What about a same day close? Where the LLC buys and an hour later sells the property back to the homeowner?
    I thought that FHA suspended the FHA flipping rule. Then wouldnt this be a possibility

  18. Eric Veronica

    I just looked and realized that tha flipping waiver doenst look like it applies to private investors. Just foreclosures

  19. Yeah. The exception to the 90 day FHA thing is only for banks foreclosing on the homes

    As to flipping back to the original homeowner, here are the BIG problems with that:

    1) Fraud - this one could/would be branded fraud if it was ever discovered by the shorting lender and brought to court. Everyone involved would be taken down. Even the “do-gooder” middle-man.

    2) New Money - How is the homeowner going to get the new money to buy it back from the investor?

    Imagine how the title commitment would look to the end lender(Chase) if the original lender was Countrywide:

    “Fee Simple Owner is Seller Smith.
    Proposed Insured is Seller Smith.
    Exceptions to Title:
    1) Mortgage in the Original Amount of $175,000 to Countrywide must be released
    2) Warranty Deed must be granted from Seller Smith to Angel Investors LLC
    3) Warranty Deed must be granted from Angel Investors LLC to Seller Smith”

    Can you see that once the end lender (Chase) got title work for this deal that they would know INSTANTLY what was going on? The underwriter would not want to have his bank be the first one to be dragged into court along with Seller Smith and Angel Investors LLC to “figure out” if this was legal or not according to a judge. He’d just deny the loan.

    Also, even if he overlooked the obvious suspicous chain of title thing…you have short sale seasoning. The bank would KNOW that the current lender was taking a short and armed with this knowledge he would have to say no because you have to wait 36 mos before getting a new loan after a short sale FHA (24 mos Conventional)

    It’s just not going to happen on a same-day double close. So your back to the whole “Angel Investor, Buy-the-home-back” line.

    The possibility is still open that it could be done with a 6 month seasoning period…but it’s not likely because of the seasoning.

    There is a workaround, but it only works for Husband/Wife scenerios where the loan is only in one spouses name that is being shorted and the other spouse has good enough credit/income to qualify for the new loan on their own. Here’s how it plays out in a perfect world.

    Seller Smith owes $200k on a house worth max appraised value of $120k. Seller Smith sells short to Angel Investors LLC who negotiates a price of $100k at which they buy it.

    They immediately sell the home back to Seller Smith on Land Contract for $135k KNOWING that it will only appraise for $120k. No money down, 9.99% interest, 2 year balloon. Land contract is done full-blown at a title company and recorded. Seasoning clock starts ticking on the land contract.

    90 Days pass and 3 mortgage payments have been made at the agreed upon price. Copies of canceled checks are available to underwriters.

    After 90 Days seasoning, Suzie Smith (who is on title) refinances in her name only. Bank does an appraisal and tells them that the home is only worth $120 and they can only get 97% of that or $116,400 and they owe $135k.

    Angel Investors LLC agrees to cut the payoff back to $116,400 (a short refinance) and Suzie Smith does a rate-n-term refi on the home. They now are in the home for $116,400 and in fact have never had any money in the deal…even though it’s 97% financing. Angel Investors LLC gets their $16,400 for their time.

    Of course, this is an example in a perfect world. You can see all the places where this can blow up. Also, the Seller tends to RESENT the investor for getting the $16,400!!! They want to be the ones buying at $100,000. I’m not joking.

  20. Eric Veronica

    So bottom line seems that if the lender is not willing to consider a short refi even after starting out with a short sale package, the borrower is pretty much out of luck.

    The only option left seems to be a short sale.

  21. Eric Veronica

    I ran into another road block being just a mortgage broker and not a realtor. I have spoke to two close friends who are realtors who are worried about signing a listing agreement becuase they are not actively marketing the property to be sold. They both think this could be considered fraud. So now I am at a road block. Do you think it would be in my best intrest to just send in the package as a short refinance or send the package to the current lender as a short sale FSBO?

  22. It’s a coin toss Eric.

    There are no hard and fast guidlines on this stuff. It’s too new and too varied.

    Might just be best to pick a path and start blazing a trail. Adjust as you get feedback from thee lender.

  23. Liz

    Who prepares the HUD-1 form in a short sale?

    I am the buyer in a short sale, the seller says my mortgage guy should prepare the HUD and my mortgage guy says the seller’s lawyer should prepare this. It has gone back and forth for a couple of weeks and nobody is working on it.

    Thanks

  24. My guess is that in your area you use lawyers instead of title companies.

    It sounds like you don’t have an agent or a negotiator in this case. In my situation, I coordinate all the details for the seller.

    If there is no agent or negotiator, then the party responsible for the closing (I’m guessing the seller’s attorney in this case) would be responsible for preparing the est HUD.

    After all, that party is the one that will be responsible to make sure everything that needs to be settled at closing is settled. Liens, taxes, back taxes, special assessments. All that.

    The buyer’s mortgage guy would not have access to this information. Only the attorney or title company would. So they prepare the HUD.

    They are also getting paid a closing fee and a seller’s title insurance policy in most cases. They need to earn their pay.

  25. Liz

    Thanks for the info, that is what I thought. A realtor recently got involved because the bank said the house had to be listed, but she is not doing anything either. I just wanted to make sure it wasn’t my responsibility to complete it before I make an ultimatum.

  26. Susan H.

    Thank you so much for all this great information, I will refer your website to everybody.
    My question is if I am only 15 days behind on my mortgage, and they won’t do a short sale refi, since I bought the house this year, and it has already lost about $125,000 in value, but I also lost my good paying job. So want is my other options besides doing a short sale???
    Thanks
    again
    from Susan

  27. Rachel

    I have a short sale in the works.The end borrower lender says I would have to be on title as owner to match with the appraisal for the end buyers loan. So, my question is this: If I were to have the current owner deed it over to me (upon approval of the short sale , and the end buyer having an approval) what are my liabilities to the short sale Bank for the short payoff if the end buyers loan does not go through? Would I then be responsible for the short sale payoff? Also, thank you so much for your posts on BO!!

  28. Rachel,
    If you are working a short SALE (not a short refi) then the answer to your question depends on how you are working the transaction.

    There are many ways to work a short sale scenario and all of them are different depending on your positioning in the deal.

    From the context of your post it seems to me that you are an investor buying a property on a short sale from someone facing foreclosure and are trying to “InstaFlip” it to an end buyer.

    The problem with having the homeowner deed the property to you is that if the bank taking the short finds out they may end negotiations as they are only able to negotiate with the borrower, but if the borrower deeded the home to YOU then they have no equitable interest in the property anymore and can’t authorize a sale anyway! From the banks perspective this puts them in a precarious position and thus they just end negotiations and take the foreclosure.

    It’s better to use an Option Contract with the seller and then record the option, placing you on title.

    When title work is prepared for the end buyer’s mortgage company to review, the commitment shows that a warranty deed must be transferred to YOU then a warranty deed from you to the end buyer.

    The key to the whole thing is that the end buyer’s lender must be cool with this.

    If they are going FHA it will NOT be cool because there is a 90-day seasoning period on all FHA purchases.

    If it’s “Conventional” (as in Fannie/Freddie backed) then there are no seasoning guidelines unless the actual bank itself imposes their own seasoning “risk overlays” that go above and beyond the Fannie/Freddie guidelines.

    The trick is making sure the end buyer is working with the right kind of lender.

    As to responsibility for the debt if the seller deeds the home to you….you are NEVER responsible for the debt to the lending bank because you NEVER signed paperwork with the bank binding you to the loan. The seller’s loan never becomes “your loan”.

    Even with “Subject-To” real estate investing, where you take over the payments for a seller, you can never assume the credit liability of the original borrower because you never signed with the original bank.

  29. Susan,

    A short refi or a loan modification may be in order for you.

    It will all depend on your unique situation and the position that your bank has taken on negotiations.

    Things are constantly changing, esp now that the new “Rescue” legislation fired up Oct 1st, 2008.

  30. Brad,

    The process itself should not constitute fraud. After all the listing agreement is just a listing agreement. People list their homes all the time and then change their mind about selling them. (sometimes at the closing table after they agreed to sell it to a buyer!)

    The low-ball offer should also not constitute fraud as I really WOULD buy the home at the obscenely low price that is offered IF the bank would approve the discount AND the seller would carry through with the sale.

    The chances of that actually happening are kinda low though. Either the bank won’t approve the price (typically 55% of TODAY’S market value…not last year’s market value) or the Seller won’t finalize the sale.

    So again, I would follow through with the offer if I could.

    As to tweaking the video for a fee, I would suggest you just swipe the concept make your own video. I created this one one using a FLIP style camera and basic video editing software.

    If you were using it as a marketing/promo piece then it would be better to position YOURSELF as the expert and not me.

  31. Rachel

    Thank you for your response. I am lost on what to do now. The end- buyers bank wants the seller and the appraisal to match.So my only choice would be to have the current owner deed it over to me. Any suggestions? Or do I need to back myself out of the deal at this point? And if I do , what type of fee can I get on the deal, and how is it listed on the hud?

  32. Rachel,

    Here is what I would do.

    I’d position the end buyer’s lender as the bad guy. I would tell the buyer that he needs to switch to a better lender that isn’t “caught up in the mess of the credit crisis”. Then I’d make it worth their while.

    I’d tell them that if they used MY lender that I would give them a free 42″ Plasma TV! (I’m assuming that you are making enough on the spread to justify the $700 cost of this.) Then put them in touch with my lender.

    GMAC is currently a good lender for these types of deals.

    If you have to back yourself out of the deal, then that’s ok too. Just less money to be made.

    If you are a Realtor you can structure the deal an take cash through commission. If you are not a Realtor and there are no other Realtors involved, then you can take the same type of fee a Realtor would as a “Loss Mitigation Fee” somewhere on the HUD.

    If you used an Option Contract and made the Option Offer through your LLC and the short sale bank doesn’t know that YOU own the LLC and didn’t bother to check public records to see who owns the LLC, you can do the above fees AND tell them that “The LLC refuses to release their option unless they get $2,000″ (or $3,000 or whatever you want).

    This is in similar fashion as a junior lien, or a 2nd mortgage, or a HELOC.

    I’ve gotten this approved. Sometimes you can’t.

    There are many many ways to skin the cat at this game…you just have to know them all and put them all into play.

  33. Rachel

    I am just trying to figure out a way to be on title and the bank to still allow the short sale.The end buyer is pretty adamant about thier choice of lenders, and the lender is adamant about me being on title for the purpose of the appraisal matching up. I know if they found out before hand they could call the note and pull the short sale payoff. However, are you saying that if I closed the deal this way they would pull it and not approve the HUD? Is there any way at all the negotiator would accept it.

  34. Shan Chin

    Hi Brian,

    How do you get a “Estimated HUD One Showing Net Figures to all banks taking losses” or get a pre-approval letter? Do you go to another lender asking for a refinance at market value to take over the loan? Under what criteria would the 3rd party lender willing to fund this new loan? It won’t be a traditional refinance. What do I need to ask for? Please expand on this.

    Are you accepting more clients? I’m a homeowner myself and looking for a company to do my short refinance. Please email me at shan_chin@hotmil.com. Thanks

    Shan

  35. Shan Chin,

    Your negotiator should have his/her title company do up the figures for the HUD as working numbers for closing is what title companies do.

    I just send the offer over to my title company and ask for an est HUD based on such-n-such a closing date and they get it back to me without much hassle.

    Finding the lender to fund the transaction is the tricky part. You can qualify for different programs based on whether or not you are behind on payments or not.

    Again, it’s the job of whoever you are working with to match you up with the right program.

    As of right now, I am not taking on any new clients.

  36. Shan

    Hi Brian,

    Thanks for the quick reply. There are so many different companies out there claiming they could do this but no one has explained it like you. My mortgage is with EMC (aka Chase) and the loss mitigation department just told me Chase will not be accepting or doing anymore Short Refinance. So, my only option would be a Short Sales. Do you have anyone or company you could recommend that has your knowledge and track record? Anything will help at this point. I’m on my 1st late payment ever in my entire life. Lost my job two years ago and now a nursing student. I will be finishing in 1 1/2 year and be back on my feet. Only if I could get through this hump in my life.

    Shan

  37. Shan,

    You can try to get ahold of Cory Boatright at http://ShortSaleOlogy.com

    He has a crew of qualified people from across the nation that does this pretty well.

  38. Gloria

    Regarding the Hardship letter I’ve looked online for samples which all state borrowers have fallen behind. In this case my borrowers are not behind and never have been, can you provide a sample letter for these type of borrowers that are still current but simply want to not struggle on payments. Will banks still take these type of borrowers into consideration???
    You have been an amazing help already shedding light on an unexplored nitch in the current market…. Bravo:)

  39. Regina

    Brian,

    Thanks so much for all this information. After checking out the Bootcamp videos, I am still left wondering how the Realtor makes their money in a short refinance. Did I miss something?

    Regina

  40. In a short refinance, you don’t make any money as a Realtor. You have to team up with a mortgage broker and work the business from that angle.

    If you are a Realtor you’ve got the best of both worlds because you can always go the short sale route if the bank rejects a short refi scenario.

  41. Gloria,

    I give this sample hardship letter to all of my people, and tell them to rework it for their own situation. I don’t write the whole thing for them.

    They usually just need an example to go off of and they do great on their own.

    Click here
    to download the Zip file

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