In spite of all the time that the concept has been in use, many people still don’t understand the Short Sale Process. You may expect individuals in the real estate field to know about this process, but unfortunately, a short sale is not everyone’s cup of tea. A lot of the agents of buyers are confused, and puzzled buyers are looking for some directions. At the same time, even the short sale listing agents often don’t know about the entirety of the process. Let us look at what short sale is all about.
Basics of short sale
Short sales are granted by banks for two main reasons – the seller has a hardship, and the home does not have enough equity to pay off the mortgage after paying the costs of sale. Some examples of these hardships are:
Job transfer out of town
The seller has to prepare a financial package to submit to the short sale bank. Different banks have different guidelines, but the basic procedure is similar in all banks. The package of short sale mostly consists of:
Letter of authorization which allows your agent to deal with the bank
Completed financial statement or RMA
Preliminary closing statement
Two years of tax returns
Seller’s hardship letter
Two years of W-2s
Last two months of bank statements
30 days of payroll stubs
Comparative market analysis
How to write the short sale offer and submit to the bank
Before writing a short sale letter, a buyer should ask the agent for a list of comparable sales. Banks do not release mortgage obligations at rock bottom price, and they want to receive something near to the market value of the property. Some short sales can start before an offer, but most of the times the bank starts the procedure when they receive an accepted offer. Once the seller accepts the offer the listing agent has to provide the following items to the bank:
Buyer’s pre-approval letter, copy of earnest money check and proof of funds
Executed purchase offer
Seller’s short sale package
If you do not want the short sale process to be delayed, then make sure that the package is complete. Sometimes if the package is incomplete, the bank may even shred it because some bank employees don’t have the patience for errors.
The short sale process at the bank
Buyers may have to wait for a long time for a response from the bank. In this case, the listing agent should call up the bank regularly and keep a close eye on the Short Sale Process. Buyers sometimes become tired of the waiting process and can even threaten to or cancel the deal if they don’t get an answer within a specified period. This will not solve your purpose and will not speed up the process. If the buyers do not have patience as a virtue, then the short sale process is not for them. At the same time, the buyer’s agent is not allowed to speak to the lender without authorization, so it is no use asking the agent to call the bank.
The bank follows a typical short sale process mentioned below:
Bank acknowledges receipt of the file, and this may take ten days to a month
They assign a negotiator who may take 2 to 30 days
A BPO is ordered, and the bank may refuse to share the results of the BPO
Then again a second negotiator can be assigned which may take another 30 days
The file is sent for review based on the PSA which takes two weeks to 30 days
The bank may require all parties to sign an Arm’s length Affidavit
The bank then issues an approval letter for the short sale
Some short sales can get approved in 2 to 8 weeks, and some may take 90 to 120 days on average. The length of the short sale process depends on the investor and not the bank. A good short sale agent can help in speeding up the process by staying a step ahead of the file and holding the bank accountable. It is necessary to check with the bank at least once or twice a week. It is also needed to recognize the incompetence of the negotiators and request a replacement. If the negotiator also wants the file to complete as soon as you do, then you are in luck, and the process will be completed earlier.