The Complete Short Sale Process
The Anatomy of the Short Sale Process
Short sales are easier to understand when the process is broken down and demystified. Torelli Realty has successfully closed over 50 short sales and the key to our success is:-The Right Team-The Right Strategy-The Right Checklist-The Right Systems in PlaceShort sales are more complicated than standard sales. In addition to the buyer and seller who are traditionally part of the home buying process, banks are also part of the equation, plus a strict checklist from the banks. The uncertain waters leave sellers confused and buyers anxious. Our agents understand that they must communicate frequently with all parties and remain patient and supportive through the transaction.
What is a Short Sale?
A short sale occurs when a negotiation happens with the mortgage lender to accept less than what is actually owed on the home. The mortgage lender agrees to accept a fair market value, which may be considerably less than the remaining loan amount due to real estate price declines over the last few years. The lenders are not required to negotiate but they may do so to prevent foreclosure, which is much more expensive for the bank.
Who Qualifies for a Short Sale?
Banks consider short sales for 2 main reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is valued at.What Qualifies as a Hardship?-Unemployment or Reduced Income-Divorce-Medical Emergency-Transferred by Job-Bankruptcy-DeathIt's important to note that sellers who have a good income and assets will not be considered by the banks for a short sale. The banks will require the sellers to continue to pay off their debt. It's easier to convince the banks to accept a short sale when the sellers have a hardship or no means for repaying their loan.
The Financial Package
Sellers who are trying to do a short sale will need to submit a financial package to their bank. Each bank has their own guidelines but here's a good idea of the information they will request:-Letter of Authorization (so your agent can speak to the bank on your behalf)-HUD-1 or Preliminary Net Sheet-Completed Financial Statement-Seller's Hardship Letter-Tax Returns for the Last 2 Years-W-2's for the Last 2 Years-Recent Payroll Stubs-Bank Statements for the Last 2 Months-Comparative Market Analysis or List of Recent Comparable Sales
How To Determine the Price for a Short Sale
A short sale should be listed for a price that makes the home stand out from the competition. Since short sales normally take longer than standard sales, the price should entice the buyer's agent and the buyer to put up with the time involved. It is smart to price the home close to the fair market value. Over time price reductions can be made accordingly to increase interest from buyers if the home does not receive an offer. Pricing the home for a fair value proves to the bank that the selling agent is trying to maximize the amount the bank will receive from the short sale.Of course, if a home is close to going to a Trustee Sale soon, a better pricing strategy is to price the home aggressively so that many offers are put in. then the highest offer will be submitted to the bank. Sometimes short sales are priced well below market value to encourage multiple offers.
Buyers of Short Sales
Buyers of short sales must be fully qualified. In fact, most short sales that are rejected by the bank are due to the buyer's inability to qualify. Conscientous agents will carefully screen buyers. If a buyer's offer is rejected the short sale process starts over from the beginning.
Getting a Short Sale Offer & Submitting it to the Bank
Most banks want agents to submit a purchase offer for the home along with the bank submittal. The banks want to see that the home is listed with an agent and placed in the Multiple Listing Service (MLS). Agents who are familiar with the short sale will be sure to do this. As for the offer, banks are looking for a purchase price that is close to the fair market value of the home. A competitive market analysis will help determine the fair market value.It's very important to note that just because a seller accepts an offer it doesn't mean that the bank will accept it!
Sending a Short Sale Offer to the Bank
When a seller accepts a short sale offer, the agent submits the offer to the bank along with:-A Listing Agreement-An Executed Purchase-The Buyer's Pre-Approval Letter & Copy of Earnest Money Check-The Seller's Short Sale PackageSmart agents will make sure the package is complete or else the short sale process will be delayed.
The Short Sale Process at the Bank
Right now the banks are overwhelmed with short sales and foreclosures. That means everyone involved in the process may need to wait a long time for a response. The listing agent must communicate with the bank regularly. Wise agents must keep careful notes about who they spoke to and what the conversation was about.It's also smart for the agent to communicate frequently with the buyers so that they don't feel left out of the process. Still, it's important that buyers of short sales have patience.Even though some short sales can get approved in as little as 6-8 weeks, others can take 90-120 days, on average.
Take A Look at the Typical Short Sale Process at the Bank:
-Bank acknowledges receipt of the file. This can take 10 days to a month.-A negotiator is assigned. This can take 30 to 60 days.-A Brokers Price Opinion (BPO) or appraisal is ordered to confirm the value of the home. The bank probably will refuse to share the results of the BPO.-A second negotiator may be assigned. This can take another 30 days.-The file is sent for review or to the PSA (basically the investor owning the loan). This can take 2 weeks to 30 days.-The bank may then request that all parties sign an Arm’s Length Affidavit. This is to stop people from working together to defraud the bank.*What does PSA mean? Nearly 66% of loans made since 2005 have been securitzed. This means that hundreds of loans were gathered together into one package and sold on the secondary market. Trusts that are made up of investors typically buy the package. This type of securitization agreement is known as a pooling and servicer agreement or PSA.
Short Sale Approval by the Bank
The process is complete when the bank issues a short sale approval letter.Contact us to find out more about how Torelli Realty can help with buying or selling short sales. We are on a mission to be the change in what's happening in the distressed property market.