Short Sale Process Basics
Short sale signs may reflect a less than brisk economy or an individual homeowner’s need to sell a property for less than the amount needed to pay off his or her mortgage loan. The homeowner must get lender approval.
Many people don’t understand the short sale process. If you’re one of them, you’re in good company. Many buyer’s agents lack experience with the short sale process. They can’t provide guidance to buyers in search of information. In short, not all listing agents know how to complete a short sale. Let’s review the basics of the short sale process now.
Short Sale Basics
Lenders grant a short sale for two primary reasons: the seller has a financial hardship and there isn’t sufficient equity in the home to retire the mortgage after paying costs associated with the sale.
Hardship examples include unemployment, death, divorce, bankruptcy, medical emergency, or job transfer (out of town).
If the seller requests a short sale, he or she must prepare a financial statement to submit to the lender. Each bank or lender has individual guidelines. The seller short sale statement and package will probably include an LOA (authorization letter to allow the seller’s agent to speak with the lender), comparative analysis of recent comparable home sales, preliminary closing statement, prior two months’ bank statements, RMA financial statement, paycheck stubs over the past 30 days, seller’s hardship letter, and W2 earnings statements for the past two years.
Preparing the Short Sale Offer and Submitting to the Lender
Ask your realtor for a list of comparable sales before you write the short sale offer. Banks and other lenders want to receive close to market value on your mortgaged property.
Unfortunately, the short sale price might not reflect current market value. Because the seller wants to encourage as many buyer offers as possible, the short sale price may be lower than the comparable market.
Most often, the lender begins the process on receipt of an approved purchase offer. If the seller accepts the buyer’s offer, the listing agent sends the following to the lender:
- Seller’s short sale package
- Listing agreement
- Buyer’s copy of earnest money check, proof of funds, or preapproval mortgage loan letter
- Executed purchase offer
Avoid delay of the short sale process by ensuring that the package to the lender is complete on the first try.
Bank Short Sale Process
The prospective short sale buyer must be patient. He or she can wait a long time to receive a response from the bank. The listing agent must call the bank on a regular basis and make careful notes regarding the short sale process. Buyer frustration is normal. Good communication between agent and buyer can avoid discussions about the need to cancel the purchase offer. After all, threats of canceling the purchase offer won’t speed up the bank’s decision-making process regarding the short sale.
Consider the following example of a short sale process at the bank:
- The bank acknowledges receipt of the seller’s file. Typically, the response arrives within 10 to 30 days after submission.
- The bank assigns a negotiator in two to 30 days.
- The bank orders a BPO (Broker’s Price Opinion). The bank may refuse to share BPO results with the seller.
- The bank may assign a second negotiator requiring up to 30 days.
- Based on the Pooling & Servicing Agreement (PSA), the file is sent for review. This step takes 14 to 30 days.
- The bank may ask that all parties in the prospective sale sign an “Arm’s-Length Affidavit” to verify that no party to the contract shares a business interest with the mortgagee and that no special or hidden terms and understandings are in use.
- The bank authorizes issuance of the short sale approval letter.
The short sale process takes a long time. Buyers might feel angry or annoyed or cancel an offer without advising the agent. Although some short sales are approved in two to eight weeks, others take an average three to four months to conclude. The short sale timeline usually depends on the investor, not the lender.
As you can see, an experienced short sale agent supports the short sale process. He or she stays on top of the process and holds the lender accountable. It’s essential to check in with the lender each week or as necessary to keep the short sale process moving. Sometimes, it’s important to ask for a replacement negotiator. The experienced short sale agent is fearless in concluding the short sale in the least amount of time possible.