South Lake Tahoe Short Sales: A Primer for Investors (Pt Three)

February 20th, 2010 categories: Lake Tahoe Real Estate, short sales

South Lake Tahoe Short Sales: The EvaluationThe Hardship Letter is communication between two partners to get out of a bad deal.

This is the third of an eight-part series on short sales. Think of it as coming from the point of view of the home buyer / investor, although the short sale process is the same for the South Lake Tahoe seller as well.

The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.

It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.

(current South Lake Tahoe, CA short sale summary and statistics here)

Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Four: The Short Sale Package (here)
Part Five: The Offer and Short Sale Agreement (here)
Step Six: The Lender's Short Sale Decision (here)
Step Seven: Negotiating with the Lender (here)
Step Eight: The Closing (here)

 Part Three : The Hardship Letter

Central to the short sale process with the lender, and to the short sale package itself, is the hardship letter. Written by the homeowner, it is here first and foremost that the lender must understand that their best chance of getting the most money back on their loan is a short sale, and if they do not approve such, they are looking at either a foreclosure, a bankruptcy filing by the owner, or both.

The Short Sale hardship letter should not be a sob storyLenders are all about numbers (certainly not heart). The hardship letter is, therefore, a factual accounting of a buyers financial situation. It is not a sob story. From this letter the lender should have the ability to analyze the situation to see if a short sale is the most preferable of all other alternatives. Not sympathy; factual analysis is the only goal.

The cost of foreclosure is the important element in the lenders decision. There a lots of different sources, and much subjective opinion about the actual cost of foreclosure, but the average cost nationally of a bank taking over a property is about $50,000. In South Lake Tahoe, however, the difference between the median sold price of a short sale vs that of a bank owned property in the last 180 days is $93,788 (here).

A lender is also required to put up reserve funds to be held as back up for non-performing loans. This means in addition to the difference here in South Lake Tahoe between the average proceeds of a short sale and a foreclosure, the lender must also tie up additional cash resources to back up these bad loans that could be invested elsewhere .

In other words, a smart lender has every incentive in the world these days to approve a short sale, rather than proceed into foreclosure.

The hardship letter should be written in the owners own words.  Kept factual, we also like the idea of this letter to be written by hand (we like that subliminal message). The owner needs to be focused that the letter is a clear picture of their financial condition, and back up their position with documentation of it. Such includes pay stubs, unemployment letters, medical bills, and anything else that will lead the lender into accepting that the owner is heading for foreclosure or bankruptcy.

It should also be noted that an owner's hardship letter contains confidential financial information, and as such it is not something that a buyer, or buyers agent is privy to review. What is important to the buyer is that the letter has been submitted and that the lender has approved the short sale.

Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Short Sale Agreement (here)
Step Six: The Lender's Short Sale Decision (here)
Step Seven: Negotiating with the Lender (here)
Step Eight: The Closing (here)

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