Today’s REI Classroom Lesson
In the classroom today, Brian Meara goes over who has to sign the paperwork along with who has to provide their documentation, including pay stubs, tax returns, etc.
REI Classroom Summary
In short sales specifically, we learn about who needs to sign the mortgage and promissory note and what needs to be collected from them.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Brian: Hey, everybody. This is Brian Meara, today’s host of the REI Classroom and our topic today is going to be paperwork and specifically who has to sign the paperwork.
Mike: This REI Classroom real estate lesson is sponsored by VirtualStaffNow.com.
Brian: Okay guys, a big question when working these deals, specifically short sales, it comes down to the paperwork. I know there are many different sets of paperwork around the country. One of the things that we’ve always tried to do to keep things pretty much standard is to allow someone to allow an agent to allow an investor to use whatever paperwork they choose.
What I mean by that is we find that each broker has their version of a contract or an agreement of sale or purchase agreement or whatever you want to call it that they prefer to use. For example let’s take a look at New Jersey. We have the NJR, the New Jersey Association Realtors which is a division of the National Association Realtors.
Obviously every states can have their own versions of the form, so what we did is we created an addendum. That addendum becomes part of the contract or part of the master document and it really follows the same as who would have to sign that form. Starting with the contract which would then lead into our supplementary short sale addendum, whoever signs the contract has to sign that.
That is completely different from the documents and who has to sign things from the bank and further more and most importantly who has to provide documents to the bank when doing a short sale. Let’s talk about that today.
When you’re starting to gather the documents for a short sale and it’s a lot, we know. One of the things they want to do is they want to thoroughly understand the financial situation of the person in control.
The person who can’t pay the mortgage they want to know why . . . let me stop there for a second. One of the things of course that they ask for is a hardship letter and the hardship letter is designed to explain the hardship and frankly what happened. Once they explain it was a divorce or they’ve lost their job or they’ve relocated or there was some terrible illness or whatever happened that something happened in their life that they can’t pay the mortgage anymore, the bank wants to know what happened.
So when you write all that out they will now want to see proof. They’re going to ask for the pay stubs, they’re going to ask for, we call it the “2-3-4” which is two weeks of pay stubs, three months of bank statements and four documents. It depends if you’re self employed or not. You might have to do a [inaudible 00:02:39] things of that nature. And also tax returns, let’s not forget that.
The point is sometimes people are hesitant to give them and sometimes in the situation of a divorce which is one of the biggest reasons that short sales happens guys, think about it. There’s a divorce going on that the real asset, that house now has to be sold and there’s not enough money to pay the mortgage or they owe more money on the house than it’s worth today. That becomes a short sale, there’s divisions going on, there’s problems, there’s attorneys involved. We see this all the time unfortunately.
A lot of times people don’t want to play ball when they’re going through a situation like that. The husband moved away, the wife moved away, this one won’t cooperate. The purpose of today’s training is who has to sign? Who has to provide the paperwork?
The most important thing you can take away is this. Whoever signs the contract signs all the paperwork. But the difference is this, who has to provide the information on their financials is whoever signed the mortgage, who is on the note, the promissory note.
As you may know or may not know, when you buy a house you sign a mortgage and you also sign a note, a promissory note. That is a personal promise to pay the debt, a personal guarantee if you will. Whoever signed the mortgage also always by default signs a note and that’s the only person required to provide their financial documents.
Why is this important? Well let’s back up. If one of the largest and biggest reasons for a short sale is a divorce, and in a divorce a lot of times people aren’t obviously friendly with each other. You don’t need to chase people around unnecessarily if you don’t need the documents. Meaning, a lot of times when people buy a house, a husband a wife or two people, more often then not if the one person is going to qualify for the mortgage and not the other, it’s the wife because she may be staying home with the children.
Maybe she is a homemaker now and so she’s not working and therefore she doesn’t need the income or frankly have the income to qualify. Or I’m not sexist, it can be the other way around. You have a stay at home dad. The point is this, both of them generally are on the deed, they sign the contract to buy the house. They have legal ownership together, 50-50. But normally a lot of times only one of them signs the mortgage. Keep this in mind and I’ll close with this, that’s the only person you have to gather the documents from.
So yes, while you may have to track down that husband, that wife, that significant other to get them to sign the contract, the addendum and all the other stuff, you don’t need to chase them for their tax returns, their pay stubs, their bank statements. Which by the way, going through a divorce, they may not want to show you everything. And that’s a huge tip and I hope that helps. Remember that for your next short sale.
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