The Comprehensive Method of a Short Sale

The Comprehensive Method of a Short Sale

Some house buyers and sellers may find the short sale procedure difficult to understand. It is not always easy to explain how a short sale gets started, and the procedure of obtaining clearance from a lender can be a time-consuming and laborious one.

In order to qualify for a short sale, both the seller and the property in question must satisfy a set of requirements. In addition to having a potential buyer on hand, the lender will need all of the seller’s financial information as well as the valuation of the house to be compiled and submitted to them in a packet along with any other documents that may be required.

Key Takeaways

  • When a lender agrees to sell a property at a price that is lower than the existing mortgage debt against it, this transaction is referred to as a “short sale.”
  • When a short sale is being conducted, there is often a certain process that both the seller and the bank must go through.
  • If you are interested in purchasing a short sale, you should make an offer that is as close as possible to the amount that is still owing on the property.
  • Because the procedure is often difficult, real estate brokers may need to convince the buyer and seller that they only need to be patient.

The Meaning of the Term “Short Sale”

When a lender gives their approval for a short sale, it means that they are willing to sell the property for a price that is lower than the amount still owed on the mortgage that is secured against it.

In most cases, the only time lenders will agree to a short sale is when it looks like foreclosure is unavoidable. With a short sale, the lending institution is relieved of the responsibility of reclaiming the property and bears the cost of maintaining it until it can be sold again. They will also avoid the danger of the home not selling again at a price high enough to recoup their losses, which is something that would almost certainly happen in the event of a foreclosure.

In most cases, the amount paid at a foreclosure auction is far less than the property’s current market value. A lender has the opportunity to obtain more money through a short sale than it would have through a foreclosure, but they are not likely to want to discharge any mortgage obligations at prices that are significantly reduced from their original value. 

The Common Course of Events

Once the bank has the seller’s package in its possession, the usual steps involved in a short sale from the bank’s perspective are as follows:

  • They have confirmed that they have received the material. This might take longer than ten days; in certain cases, it could take up to a month or even longer.
  • The process of assigning a negotiator might take up to a month to complete.
  • People place an order for a broker price option, also called a BPO. In this case, a broker gives an informed opinion on how much the home is worth.
  • In most cases, financial institutions will not disclose the results of the BPO.
  • It is possible that a second negotiator will be assigned, which will add another 30 days to the process.
  • In accordance with the pooling and services agreement, the file has been forwarded on for review. This might potentially take up to a month to complete. 
  • The bank may then request that all parties sign an “arm’s length” affidavit, which is a document signed by the buyer and seller stating that neither party knows the other, nor is there any type of pre-existing relationship between the two parties. This affidavit states that neither party knows the other, nor is there any type of pre-existing relationship between the two parties.

 If the transaction is allowed to go through, the bank will issue a letter of permission for the short sale.

The Fundamentals for Those Who Are Selling

There are quite a number of criteria that must be met in order to be eligible for a short sale. Nevertheless, there are typically two main reasons why banks would approve short sales. First, the seller must be going through a difficult financial time; second, there is not enough equity in the house to pay off the mortgage after closing fees.

Reduced income as a result of unemployment, divorce, a medical emergency, filing for bankruptcy, or the death of the primary income provider is some examples of situations that might cause difficulty.

The bank that will be handling the short sale requires the seller to put together a financial package for them to review. Although every bank has its own criteria, the process is generally the same from one bank to the next.

  • The Complete Bundle for Sellers
  • The following will most likely be included in a seller’s short sale package:
  • A letter of authorization allowing your agent to communicate with the bank on your behalf.
  • A preliminary statement for the conclusion
  • a financial statement that is comprehensive or a request for assistance with the mortgage (RMA).
  • A letter explaining the seller’s financial predicament
  • the returns for the prior two years’ worth of taxes.
  • W-2 forms for each of the prior two years.
  • the most recent thirty days’ worth of pay stubs.
  • bank statements for a period of two months.

A comparative market study, as well as a summary of recent comparable sales in the region

Putting Together an Offer and Taking It to the Bank to Consider

As a buyer, before you make an offer on a short-sale property, you should consult the list of similar sales provided by your agent. The bank will be hoping to get an offer that is as close to the amount that is owing to it as it can get.

There is a possibility that the price listed for the short sale may not accurately represent market value. In point of fact, the property can be listed at a price that is lower than sales that are comparable to it in an effort to elicit many bids. While the process of certain short sales can get underway before an offer is even made, the majority of the time, banks won’t start the process until they have received and accepted a purchase offer. 

After the seller has decided to accept the offer, the listing agent will provide the bank with a copy of the listing agreement, the completed purchase offer, a letter from the buyer stating that they have been pre-approved for the loan, a copy of the earnest money check, and proof of funds. Additionally, they will submit the short sale package on behalf of the seller.

If there are still items missing from the box, the short sale procedure will be held up. They can decide not to ship it back to you in an effort to save themselves as much money as possible from the transaction. 

Bank Buyers can have to wait a long time before receiving an answer from a bank on a short sale. It is important for the listing agent to stay in touch with the bank and keep careful records of how the transaction is going.

Approval for certain short sales might take anywhere from two to eight weeks. On the other hand, some can take an average of 90 to 120 days. An experienced short-sale agent can contribute to a little acceleration of the process by monitoring the progression of the offer and ensuring that the bank is held accountable. 

It is essential to communicate with one’s bank at least once or twice every week, if not more frequently. It is frequently required as well to acknowledge the actions of inept negotiators and to make a request for a replacement. You should never be scared to advocate for yourself or escalate your activities farther up the management chain of the bank.

Some Last Words of Advice

Buyers may grow impatient while waiting for short sale clearance and threaten to withdraw their offer if they do not receive a response within the allotted amount of time. The procedure can be quite annoying; the buyer’s agent and the seller’s representative may both need to do their best to convince the buyer and the seller that they just need to be patient because the wait can be quite long.

When the file is sent out for its final review, the listing agent will often have some notion of when the approval will arrive. At that time, purchasers may wish to begin the process of getting a loan and performing any other necessary due diligence so that they have a head start in the event that the bank only permits a few weeks to close. 

Questions That Are Typically Asked (FAQs)

How long does it take to complete the short sale process?

You should plan on the short sale process taking a few months, but the precise duration of the whole thing will depend on how long each individual stage takes to complete. You should expect to wait up to thirty days for the bank to receive the paperwork; you should also expect to wait up to thirty days with each negotiator you need to work with, and you should expect to wait two to eight weeks for final approval. Any stage of the process has the potential to take longer due to problems, such as flaws in the application, but it also has the potential to go more quickly under more favorable conditions.

How frequently do banks agree to accept offers for short sales?

The response to this question varies greatly depending on the offer. A very low-ball offer is considerably more likely to be declined than a more reasonable one. It is also possible that there are issues with the application, or that the seller does not qualify for a short sale; any of these circumstances increases the likelihood that the offer will be rejected. If you want to have a better understanding of how to structure an offer that has a good chance of being accepted, you should talk to a real estate agent in your region that has expertise in working with short sales.

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