We are often asked “What is the typical short sale process?” To fully understand the short sale process one must first understand what it means when a homeowner elects to short sale their home.
What is a Short Sale?
A short sale is a home that is being sold for less than what the homeowner owes the lender. It’s important to know that during a short sale there are two parties who must agree to the terms of your offer, the seller and the bank. Beyond that a short sale is considered a regular sale between the seller and buyer.
It is important to note that a homeowner must document their financial hardship by providing their lender with copies of their tax return for the last two years, current pay stubs for the past 2 months and a host of other financial information. Be sure to have your Realtor asks the listing agent were they are in the short sale process.
A short sale is an excellent solution for homeowners who need to sell and who owe more on their homes than what the current market dictates.
Eight Facts Every Buyer Needs to Know Before Placing an Offer on a Short Sale
1. It’s important to know how many loans are on the property. If there is more than one loan the lender in 2nd position typically only receives a very small payoff and may withhold their approval for a short sale in an attempt to obtain a higher payoff.
2. Find out who the lenders are and ask your agent if they have dealt with the lender and what their experiences have been. Lender approval varies from bank to bank.
3. Where are the sellers in the short sale process? It’s important to know if/when the seller submitted their financials to the lender. If they’re just starting the process you can be in for a long wait of approval while the bank review the sellers hardship claims.
4. It’s important to know that most lenders will want to net approximately 85% of the current market value after paying commissions and closing costs.
5. Does the lender own the loan or are they simply servicing (collecting payments) the loan. If the lender is only servicing the loan there will be additional entities involved in the approval process.
6. Is the loan insured by a government agency or eligable under HAFA? If so, approval will be required from the agency that issues the mortgage insurance. This will add more time to the approval process.
7. Lenders may reject your offer if you ask the seller for things like a home warranty, repairs or more than 3% in seller closing cost assistance.
8. One of the most important questions to ask is if the seller’s agent has had past experience successfully closing short sales.
After your offer is accepted by the seller, their Realtor will send your offer to the seller’s lender for consideration and acceptance. It is important to note that at this stage, you offer is not “technically” accepted since the lender, or lenders, have not agreed to a short sale. As a result, escrow is typically not opened and the buyer’s earnest money deposit is not required until a short pay approval letter is provided.
Although it is a matter of great debate among Realtors, some banks require that the seller’s agent keep the listing “active” in the MLS for a predetermined number of days (usually 14), to obtain back-up offers from other interested buyers.
The short sale process will always include an Appraisal from a licensed Real Estate Appraiser, BPO (Broker Price Opinion) from a local real estate agent, as well as a thorough review by the lender’s loss mitigation department. This process can take anywhere from a few weeks to several months.
When the bank responds with an answer it will be in the form of a counter offer, a request for the seller to contribute funds of their own, and/or the offer may be accepted outright and a short sale letter of approval will be provided to the seller and their Realtor. This letter will contain the price the bank is willing to accept, what closing cost are to be paid by the lender, the seller and buyer, and the time period in which the sale and transaction must close, usually within 30-45 days of official acceptance. It’s important to note that once the short sale approval letter is received the time periods agreed to in your offer start ticking.
Related Articles – Short Sale Basics
- Steps to Submitting a Short Sale
- Selling My Home as a Short Sale?
- Short Sale vs. Foreclosure
- What is an Acceptable Hardship?
- How to Write a Hardship Letter?
- Common Short Sale Mistakes
- Short Sale Tips
- Short sale FAQ: credit score impact
- Why Choose a Short Sale
- What is a short sale?
- Do I quality for a short sale?
- How do I get started?
- Why do lenders accept short sales?