SHORT SALE LISTING PROCESS:

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1 SHORT SALE LISTING PROCESS: 1. We will be required to prepare a Net to Seller worksheet to show the lender that your property qualifies for short sale. In conjunction with this, we will need to determine the fair market value based on a comparative market analysis. 2. We will need to contact the lender to ask if the lien holder will accept less than what is owed on the property. 3. We will need to consider having a preliminary title opinion done to determine the liens that are currently existing on the property, in the event the lien holder has already taken measures we may not be aware of. 4. In relation to item 3, contacting an attorney to retain services and their policy regarding the execution of a short sale. My recommendation will be Baker and Colby. We can contact Stephanie Rivenbark directly at It is now a law in NC that the negotiation of the short sale with the lender needs to be handled with an attorney so that there won t be the appearance of the agent practicing law at any point. See attachment titled (Baker/Colby) regarding their outline of how the negotiations are handled in our state and how they are paid. 5. There are copies of the Short Sale Addendum to the Exclusive Right to Sell Listing Agreement attached (form 104) and the form that is attached to the offer to purchase and contract once we get an offer called the Short Sale Addendum (form 2A14-T). These documents explain the processes and what we can expect. Please note the items of importance below in form 104 as this will be attached to our listing agreement: a. A short sale is a material fact that we must disclose in the listing (paragraph 1) b. Once a sales contract or an offer to purchase is sent to the lien holder, the lien holder controls the process and the timeframe for responding. (Last sentence paragraph 4) c. You are advised to seek the advice of a CPA to determine the tax ramifications of a short sale for your specific situation. (paragraph 3) d. As noted above, it is recommended that you speak to an attorney to make sure that a short sale is the best course of action for you as opposed to filing bankruptcy or other options. (attached explanations of other remedies) (paragraph 5) 6. If you are served with documents from your lending institution concerning their commencement of foreclosure or other judicial proceeding, or if you are advised and plan to file bankruptcy during this process, please notify me immediately. These items will be considered material facts with regarding to the listing and selling of your home. Should we not disclose and negotiate a contract for sale, the above referenced situations will render our contract voidable and we would be unable to perform. (see the last bullet of form 104)

2 7. Form 2A14-T Short Sale Addendum to the Offer to Purchase notes the following: a. A lien holder may require some terms of the contract to be amended in exchange for approval of a short sale (paragraph 4) b. You and the buyer are not obligated to agree to an of the lien holder s proposed terms (paragraph 4) 8. In conjunction with all communications during this process between all parties, I will be required to keep detailed records of conversations and provide a copy to you the seller and to the lien holder regularly or as requested. 9. Once we have arrived at fair market value for your home based on a comparative market analysis, we will notify the lien holder that the property is listed. We will inform the lender that we will be sending them any and all offers for consideration. Please note, the lien holder is not a party to the contract and cannot sign it on your behalf. 10. Any and all offers must be executed by the buyer and seller to create a contract. We will attach the necessary addendums as outlined above 2A- 14T to the offer. 11. We will carefully chose a closing date and consider using a number of days after lien holder s approval rather than a set specific date for closing as a short sale takes time for lenders responses and negotiations. 12. Once we have negotiated a contract between you and the buyer, we will send it to the lien holder and mark your listing as active-contingent in the multiple listing service. 13. If other offers are received, we will be required to present them to you, the seller, and all parties with previous offers on the table that there are other offers in place. Any back up contract and all offers will also be submitted to the lien holder as the NC Real Estate Commission considers the existence of such offers to be a material fact. 14. Once we have received lien holder approval on one of the contracts, we will change the status from Active-contingent to pending in the multiple listing service on your listing.

3 Gathering Information from the Seller and other Sources It is important that I am aware of how much is owed on your property and whether there is any default at this point that the lien holder is holding you responsible for including liens for taxes or association dues. I will need the following information to prepare the short sale package to present to your lender. (Please be aware, this may or may not encompass all the needs of the lender. It is possible that the lender will have documents that will be specific to their institution that we will be required to provide.) 1. Most recent mortgage statement including second mortgages and lines of credit. 2. Most recent property tax statement and association dues bill. 3. Any documentation you may have been provided by your lender documenting default or the proceeding for legal actions. 4. A hardship letter written by you describing your financial circumstances and what happened to bring you to your current situation. You should be as persuasive as possible in describing why you are in no position to continue with your financial obligations to the lender. This letter could make or break our possibility for negotiating the short sale. The reasons given by you should be corroborating material (i.e. if you were fired include the termination letter). If there are tax problems or income problems, document them. 5. A completed and signed personal financial worksheet. This will include assets such as other real estate, stocks, bonds 401ks, etc. 6. Tax returns, both business and personal, withal schedules (signed) for all business entities for the previous two years. 7. Employment paycheck stubs for the past two months (if applicable). 8. Profit and loss statement (if self-employed) 9. Bank statements for the past three months. Once we get an offer negotiated and ready to submit to the lien holder for negotiations, we will need to include the following: (the majority of these items I will be responsible for assisting in preparing) 1. A copy of the purchase contract and all supporting documents signed by both buyer and seller. 2. Written proof of the buyer s ability to purchase property. 3. A copy of the certified escrow instructions. 4. The preliminary title report we have had prepared by our retained attorney. 5. An estimated net/closing statement certified by our attorney. 6. A completed and signed IRS form 4506 Request for Copy of Tax Forms. 7. A competed short sale application if required by lender. 8. An updated Comparative Market Analysis indicated fair market value (this does not preclude the lien holder from obtaining their own analysis from a third party broker or appraiser).

4 9. A short narrative that I will write about the market and market trends in the immediate area of the property being sold with supporting materials. 10. Marketing history, showings and feedback showing the efforts we made to sell the home. 11. A formal request signed by you that the short sale be approved as submitted. IMPORTANT NOTE: If there are multiple loans, this process will have to be repeated for each lien holder. The lender can do one of several things: 1. Ignore the offer. (This really happens) 2. Refuse the offer, either with or without an indication of what net proceeds would be acceptable. 3. Ask the seller to bring some or all of the shortfall to closing. This is a typical first response. If the seller is unable or unwilling to do so, we will contact the lender immediately with a letter from you to that effect. 4. Or they approve the offer. If the lender refuses the offer, we will try to determine the net proceeds the lender would accept and go back to the buyer with these terms to see if they will increase their offer to facilitate such a sale.

5 What are the options available to the seller? In rough order of least damage to credit to most damage to credit they are I. Keep the property. If the seller is unhappy that the property value is less than the loan balance, but is otherwise under no pressure to sell, keeping the property can be the best solution. Even if there is some short term financial distress, it need not result in the loss of the property. Ask if there are family or other resources that can carry the seller through if there is some financial stress. Because of the lack of equity, a refinance may not be possible, but be aware of special hardship refinance programs a particular lender may offer, including the Making Home Affordable refinancing and loan modification programs of the Obama Administration. The various programs change frequently. If the sellers must move, could they rent the property (even at a negative cash flow) and sell it later in a better market? II. Sell the Property and Bring Cash to Close Escrow. This may not sound appealing, but it can be a good choice for sellers who are in a financial position to pay a deficiency from other liquid assets. This approach avoids the credit damage that even a successful short sale will cause An alternative in some circumstances is for the seller to agree to convert any deficiency into a personal note, or a note on another property owned by the seller. REALTORS should always advise sellers to consult appropriate legal and tax professionals before considering such a note. 1 III. Attempt a Workout with the Lender. Lenders advise NAR that they must speak with the borrower directly about all options before it will consider approving a short sale. Lenders are increasingly interested in helping financially distressed homeowners stay in their homes and are required to do so if participating in the Making Home Affordable Programs. 2 In some cases, they have been willing to reduce or roll back interest rates, or reduce the allowable payment, to help sellers avoid short sales and foreclosures. It is not generally advisable for the agent to take the lead in representing a property owner in a workout. Workouts are not real estate transactions. They are complex contract modifications, and to date, relatively few homeowners in distress have been able to come to permanent agreement with their lender. The homeowner should be advised to consult an attorney if this is the option they choose. Note the new laws and emerging policies and procedures by the Obama Administration, Fannie Mae, Freddie Mac, the VA, the FHA and private opportunities for financially distressed homeowners. IV. Offer the Lender a Deed in Lieu of Foreclosure. If the seller owes more money than the property is worth, is unable to make payments and is likely to lose the property in foreclosure in the near future, offering to trade the property to the lender in exchange for the cancellation of the note might make sense. This approach is more likely to be successful in states with very long foreclosure timelines. The lender can obtain the property much sooner and may feel that the mitigation of loss is worth the

6 cancellation of the note. Like workouts, this is a contract negotiation and should be undertaken only after consulting with an attorney. V. Offer the Lender a Short Sale 3. We will discuss the short sale process in greater detail. 1 Article 13 REALTORS shall not engage in activities that constitute the unauthorized practice o flaw and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it. 2 Go to for information about the Obama Administration s refi and loan mod options. 3 There are tax consequences associated with these options, some of which have changed under the Mortgage Forgiveness Debt Relief Act of 2007, as amended by P.L (10/3/08). Up to $2 Million of qualifying mortgage debt forgiven on the taxpayer s principal residence from January 1, through December 31, 2012 will not be treated as income for the taxpayer, subject to various restrictions. The limit is $1 Million for a married person filing a separate return. Mortgage debt reduced (forgiven) through restructuring, such as a workout or a short sale, as well as mortgage debt forgiven in connection with a foreclosure, all qualify for the tax exclusion. The Act applies only to principal residences, not vacation homes or investment property. Also the exclusion applies only to acquisition indebtedness, which is generally defined as debt used to originally build, purchase or improve a property. Although short sales tend to minimize the difference between what is owed and the proceeds turned over to the lender, thereby minimizing the taxable income potentially accruing to the seller, the possibility remains. Sellers should be advised to consult with tax or legal counsel regarding the impact of the new law and other tax rules on their circumstances.