The Workout Packet
The workout packet or short sale packet is a crucial thing to secure when speaking with a lender's representative because this is the packet that offers you all you need to close a short sale with a specific lender. Workout packets are different with every lender, but all include the forms, procedures, and instructions you must follow to meet a specific lender's short sale proposal requirements. It is hard to exaggerate the importance of getting this packet and filling out everything in the packet accurately and completely. Without doing this, you simply have very little chance of success.
Although workout packets vary, they generally include a few basic elements:
1) The Broker's Price Opinion (BPO).
This may or may not be included in the packet, but it is vital for you to understand the BPO when assembling the required material. The BPO is the evaluation and assessment submitted by a professional appraiser or real estate broker to the lender. The lender requests this information about each property in pre foreclosure to determine a fair value for the property. Most brokers and appraisers consider the home's condition and the market when setting a value on the home. The BPO determines how fair a lender thinks your offer is. If a BPO is set unreasonably high, for example, your short sale offer may be rejected, even if it is quite reasonable. If there are any errors in the BPO it is often hard to convince lenders of this. If you do not know what the BPO is on a property or if you think the BPO might be incorrect, it is important that you include a detailed, professional assessment with your workout packet, even if it is not required. You need to hire a professional and qualified assessor or inspector for this.
2) Hardship Letter.
Many workout packets require a hardship letter, which is really a statement that outlines why a homeowner has fallen behind in home loan payments and why the homeowner cannot make payments now. The letter must essentially prove that the homeowner cannot afford the mortgage and is unlikely to be able to afford the home loan in the near future. You need to write a detailed description of the homeowner's financial situation. The letter must be detailed, accurate and must portray the financial situation in the most dire terms. Some investors hire professional writers to create the most compelling descriptions possible. In addition, the sales packet may require that the homeowner submit taxation documents, pay slip information and other proof of their inability to pay. Everything a lender requests must be submitted exactly as requested.
3) HUD-1 Settlement Statement.
A preliminary HUD-1 settlement statement or form outlines the charges that you have paid for the real estate transaction and shows all the money being exchanged in the real estate transaction. This document shows that you have an agreement with the homeowner and shows the lender that the homeowner is not profiting from the deal. It is a good idea to have an escrow or title company to help you with this form. It is important that the form shows that you pay the costs associated with the deal and that all the monetary amounts add up exactly.