{"id":283,"date":"2022-09-04T14:42:54","date_gmt":"2022-09-04T14:42:54","guid":{"rendered":"https:\/\/iamfacingforeclosure.com\/2022\/09\/04\/i-am-facing-foreclosure-com-hardship-letter-and-short-sale\/"},"modified":"2022-09-04T18:41:47","modified_gmt":"2022-09-04T18:41:47","slug":"hardship-letter-and-short-sale","status":"publish","type":"post","link":"https:\/\/iamfacingforeclosure.com\/hardship-letter-and-short-sale\/","title":{"rendered":"Hardship Letter and Short Sale"},"content":{"rendered":"
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\"hardship-letter\"<\/a><\/p>\n

Here is my hardship letter that I wrote for asking the bank to allow a short sale on several of my upside-down properties like Larchmont<\/a> and Burdett<\/a> in Sacramento, and Guadalajara<\/a> in New Mexico.<\/p>\n

[See my updated hardship letter<\/a>]<\/p>\n

What is a “Short Sale”?<\/strong><\/p>\n

Sam Chapman a real estate agent from Austin<\/a> puts it nicely in his Avoid Foreclosure with a Short Sale<\/a> post:<\/p>\n

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This is a kind of sale that lenders may allow if a home owner is behind on payments and owes more than the market value of the home. A short sale occurs when a lender approves the sale of a property for less than market value because of a financial hardship. Lenders do not want to own real estate. They would rather take a loss on a sale than actually own the property. Lenders also don’t like to foreclose. It is a process that costs them time and money and then they are stuck owning property.<\/p>\n<\/blockquote>\n

So the bank will loose a little now to avoid loosing a lot via foreclosure. <\/p>\n

If the property is not sold via a short sale and nobody buys it at the foreclosure auction (trustee sale) then the bank automatically owns that property. At that time it’s called an “REO” – Real Estate Owned. The bank then lists the REO property with a local REO agent. The property goes on the MLS and is old in the traditional way.<\/p>\n

Here is list of CitiMortgage REO properties<\/a>. Only 6 in California?? Things must not be THAT bad yet!<\/em><\/p>\n

The banks are not in the real estate business – they are in the MONEY business. Taking back a property creates a non-performing asset on their books. And too many non-performing assets is a bad thing.<\/p>\n

Short Sales Increase in a Down Market.<\/strong><\/p>\n

The recent Sacramento Bee article<\/a> talks about the emerging Short Sale trend (via Sacramento Landing<\/a>): <\/p>\n

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Known in the real estate trade as a “short sale,” this desperate, but practical tactic — negotiating less than a complete payoff to lenders — reappears like clockwork when real estate markets sour. Widespread in Texas during the 1980s oil and real estate crash and again in the 1990s as California lost thousands of jobs to military base closings, short sales are back and proliferating, say local specialists who handled them in the 1990s. Elk Grove real estate agent Derek Kirk recently counted 264 short-sale listings in El Dorado, Placer and Sacramento counties compared with fewer than 50 six months ago…<\/p>\n<\/blockquote>\n

Investors (and Banks?) Like Short Sales<\/strong><\/p>\n

John Nazareno of Foreclosure Information blog<\/a> puts it this way in his Negotiating A Short Sale \u2013 The High Road To Huge Foreclosure Profits<\/a> post:<\/p>\n

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The concept behind the short sale is simple: your goal as a real estate investor is to convince the bank to sell for less that is owed as payment in full. Of course, this concept is easy – buy the foreclosure from the bank at a big discount, sell the real estate, and make money!<\/p>\n<\/blockquote>\n

John goes on to describe a Short Sale from a Bank’s perspective<\/strong>:<\/p>\n

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Short sales contracts help lenders unload unwanted property and spare many expenses associated with the foreclosure process. These expenses include, but are not limited to, court costs, bankruptcies, repairs and marketing. This is in addition to the $300,000 to $800,000 (or more!) normally held in reserve by lenders. Federal regulations require this reserve, which is usually many times over the actual price of the bad debt.<\/p>\n<\/blockquote>\n

If I was the bank I sure would not want to deal with trying to sell a fixer-upper in a falling California market. They would have to either fix it up nice (banks are not in the construction business) or sit on the market for months. With so much inventory on the market the buyers are very picky. I learned first hand how tough it is to fix a property and sell quickly in this market.<\/p>\n

Investors love shortsales because they can free up a huge chunk of equity. Nowdays a fix-n-flip investor can’t touch most properties because everybody is leveraged to the max. So once the banks becomes motivated enough to start discounting – the short sale game will begin. And it is already starting.<\/p>\n

A true fix-and-flip investor needs to pickup the property at AT LEAST 30% off retail – MINUS repair costs. Also, hard money \/ private money lenders normally lend upto 65-70% of After Repair Value. So the ratio has to work for an investor before they can buy on a short sale.<\/p>\n

I hear the banks are still letting stuff go at only about 80-85 cents on the dollar. But the ratio is dropping. Mr. Banker, do not take back that house! Sell it cheaply and quickly to an investor on a short sale. It’s Win-Win!<\/em><\/p>\n

Short Sale Packet<\/strong><\/p>\n

The following paperwork is typically submitted to the bank by an investor (or agent) when asking for a shot sale:<\/p>\n