The anatomy of a short sale

It is stressful when life changes happen and it becomes impossible to maintain your previous level of income and payments. The experienced Realtor will explore various options available to you. They will encourage you to seek advice from an attorney or accountant regarding tax ramifications, impact on credit and other possible liabilities. Realtors may provide an overview of information by giving short sale or foreclosure advisories, however they cannot give legal or tax advice. Problems may arise when a homeowner is unaware of the consequences or problems.

The short sale process follows similar steps from bank to bank. Not every agent knows what these steps are and how a short sale should proceed. The short sale transaction can be complicated and takes four to five times the work of a standard sale. An experienced agent knows what the roadblocks are and has dealt with many situations and has access to solutions.

The banks grant a short sale for two reasons; the seller has a hardship or owes more on the mortgage than the home is worth. Hardships are just that; unemployment-underemployment, divorce, medical emergency, bankruptcy, death.

The first thing a good agent does when taking the listing is ask you to put together “the package” which varies from bank to bank, but essentially they all want the same information. That includes: a letter of authorization (lets your agent speak to the bank), two years tax returns and W-2’s or 1099’s, payroll stubs, two months bank statements, current financial statement, and hardship letter. The agent will provide a HUD-1 or preliminary net sheet, comparative market analysis, condition of the property, listing agreement and a copy of the MLS (multiple listing service) report.

Next the sale, and not everyone should be a buyer of a short sale property no matter how good the deal. Buyers should remember banks are not in the business of giving away homes at rock-bottom prices. When a buyer makes a short sale offer, comparables should be provided of like property sales. This is important for a number of reasons; 1) it will give you a realistic price for the property; 2) the bank wants to receive a price at or near market value of the property. Short sale pricing may have little to do with market values and in fact the property may be priced below the market to encourage multiple offers and bidding wars.

There is misunderstanding regarding who the offer goes to. It goes to the legal owner of the property, which is the homeowner. The homeowner accepts or rejects the offer. If it is accepted, it will be added to the packet prepared for the bank, which now consists of a current copy of the listing agreement, executed purchase offer, buyers preapproval letter and copy of earnest money check, or if all cash, proof of funds. If the package is incomplete, the short sale process will be delayed, and in some cases banks will shred the incomplete package and you start all over again.

Typical timing is: bank acknowledges receipt of the file – 10 days to a month. Negotiator is assigned - 30 to 60 days; BPO is ordered, (Brokers Property Opinion), 15 to 30 days, bank issues a short sale approval letter – 30 days. If the buyer has stayed around, then the deal goes to escrow. One of the second largest causes for short sales not closing is the buyer loses his patience and walks. The first is the owner gives up.

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