What is a Short Sale?
A short sale is when the balance owed on the mortgage exceeds the current market value. The seller is usually in a position where paying the mortgage has become unmanageable, which is prompting a short sale to get rid of the property. The goal is to find a buyer who wants to purchase the property at the MARKET PRICE. The Oak Agency is an experienced real estate brokerage with open lines of communication with bank asset managers. We know the formulas, the factors, and the motivation of an asset manager when it comes to reviewing a Short Sale. Don't listen to an inexperienced agent that thinks they know how it works. Choose The Oak Agency, because we KNOW how it works and provide the expertise and support you need.
To learn more about the Sort Sale process from Beginning to End please see the information below.
The Complete Short Sale Process From Beginning to End
The short sale process is still a mystery to many people even after all these years. Puzzled buyers are looking for direction but even buyer's agents are sometimes confused. On top of that, not every short sale listing agent knows how to do a short sale.
What Is a Short Sale?
When a lender approves a short sale, it's agreeing to sell the property for less than the outstanding mortgage balance against it.
The short sale signifies that the lender believes that foreclosure seems inevitable. The lender benefits from offering a short sale option to the homeowner so they don't have to take the property back and go through the expense and hassle of maintaining it until it can be sold again—and there's no guarantee how much it will eventually sell for.
The dollar amount of a short sale offer is right there on the table and it's often more than the lender is likely to get for the property in a foreclosure auction. That said, banks aren't in business to release mortgage obligations at rock-bottom prices, either.
The Basics of a Short Sale for the Seller
Banks grant short sales for two basic reasons. (1) The seller is experiencing a hardship and (2) there isn't enough equity in the home to pay off the mortgage after paying the costs of sale.
- Some examples of hardship include; unemployment or reduced income, divorce, a medical emergency, a job transfer out of town, bankruptcy, or a death.
- The seller must prepare a financial package for submission to the short sale bank. Each bank has its own guidelines but the basic procedure is similar from bank to bank.
The Short Sale Package
A seller's short sale package will most likely consist of:
- A letter of authorization which lets your agent speak with the bank
- A preliminary closing statement
- A completed financial statement or RMA
- A hardship letter from the seller
- Two years tax returns
- Two years W2's
- 30 days payroll stubs
- Two months of bank statements
- A comparative market analysis or list of recent comparable sales in the area
- Writing a Short Sale Offer and Submitting It to the Bank
As a buyer, be sure to ask your agent for a list of comparable sales before you write a short sale offer. The bank will want to receive something at least close to market value and in order to be taken seriously the lender will want to see that you have accurate information. Your agent will need to take the time to do a CMA (Comparative Market Analysis) using the MLS and accurate pricing and sale information for the last several months.
Keep in mind that the short sale listing price might not reflect market value. In fact, the property might be priced below comparable sales in an effort to encourage multiple offers. Some short sales can begin prior to an offer but banks will most often start the procedure upon receipt of an accepted purchase offer.
After the seller accepts the offer, the listing agent will send the listing agreement, the executed purchase offer, the buyer's pre-approval letter, a copy of the earnest money check, and proof of funds to the bank. She'll also submit the seller's short sale package. The short sale process will be delayed if the package is incomplete. The bank might even shred the package which will push you back to the beginning. Unfortunately, the lender is not flexible on any of their terms. Often times lenders are flooded with Short Sales and they are not willing to "take it easy" on a seller, despite the seriousness and degree of stress that sellers feel when in this position.
The Short Sale Process at the Bank
Buyers can wait a very long time to get a short sale response from a bank. It's important that the listing agent call the bank regularly and keep careful notes of the progress. Buyers can get so tired of waiting for short sale approval that they might threaten to cancel if they don't get an answer within a specified time period, but that's self-defeating. It won't speed up the short sale process. A short sale might not be the best option for buyers with little patience.
A buyer's agent isn't allowed to speak with the lender without authorization so don't ask your agent to call the bank. It won't work.
The Typical Process
This is the typical short sale process from the bank's end of things:
- It acknowledges receipt of the file. This can take from 10 days to as long as a month.
- A negotiator is assigned. This can take two to three days, or it can take 30 days.
- A broker price option is ordered. The bank probably will refuse to share the results of the BPO.
- A second negotiator might be assigned. This can take another 30 days.
- The file is sent for review based on the pooling and services agreement. This can take from two weeks to 30 days.
- The bank might then request that all parties sign an "arm's-length" affidavit.
- The bank will issue a short sale approval letter.
Sometimes buyers cancel after all this. They become angry and annoyed because the short sale process is so lengthy and they think they can drop the whole thing without telling anyone, even their agents.
Some short sales get approval in two to eight weeks. Others can take 90 to 120 days on average. A top short sale agent can help to speed up the process a little by staying on top of the file and holding the bank accountable. Checking in with the bank at least once or twice a week is imperative. Recognizing the behavior of incompetent negotiators and requesting a replacement is often necessary as well. Never be afraid to escalate. Cross your fingers that the negotiator wants to wrap up the file as much as you do.
Submitting complete packages in advance can often help to speed up the process, too.
A Final Tip
Our agents will often have some additional information on the length of time until the property is approved for Short Sale. Once this package is submitted and a timeline is established with your agent we will start marketing the home to potential buyers and push them to start the loan process. The bank can respond quickly or in much longer timeline but, there is a chance that the bank allows only two weeks to close - in which case it is best to be prepared! Most importantly, do not go through this process alone - the best bet is to have someone on your side that can advocate for you. Undergoing the short-sale process can feel like taking on a second job and will likely add to your stress and to the length of the process. If you have any questions about the short sale process please feel free to call us at (561) 331-8899