What is a short sale?
Typically if you hear the phrase short sale you would think the process should be fast. Unfortunately, that is not the case. Short sales are actually the longest type of real estate transactions. The reason they are called a short sale is because the owner of the property isshort sale pic newest requesting their lien holder to take a “short” payoff on the loan in order to sell the property. Typically the owner owes more on the lien/mortgage than the property is actually worth in the current market. In order for a bank to consider this option, the owner has to be able to prove some sort of economic or financial hardship or circumstance that is preventing them from being able to repay the deficiency when selling.
How does the short sale process work?
The short sale process can vary slightly from bank to bank but for the most part it is fairly standard in the industry. All owners will be required to fill out and submit a short sale package that will typically include a hardship letter along with financial documents and certain authorizations for the listing agent to be able to communicate with the bank on the owner’s behalf. Once the owner accepts an offer, the listing agent will send it into the bank along with the short sale package. Once in the banks possession, it is up to the listing agent to continually follow up with the bank to work through the process. Below is the typical process a file will take with most banks as it moves towards approval.
- 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 BPO (broker price opinion) or Appraisal is ordered. This is so the bank can verify market value.
- A second negotiator may be assigned or the file may be transferred to different people in the loss mitigation department. This can take another 30 days.
- The file is sent for review or to the PSA. This can take 2 weeks to 30 days.
- The bank typically requests that all parties sign an Arm’s-Length Affidavit.
- The bank issues a short sale approval letter.
How long does the short sale process take?
From the time a buyer writes a contract to the time an approval letter is issued, the process can vary from 70 days up to 6+ months. Many factors can determine the exact length of time it can take. If a short sale property has been pre-approved from a previous contract that fell through, the length of time may be shorter than a typical short sale that is starting the process from the beginning. On average every buyer and seller should expect anywhere from 120 days to 180 days from beginning to end.
What are the risks in a short sale transaction?
There can be many risks in the short sale process on the buying and selling side. Let’s take a look at what the risks could be on both sides of the transaction.
- The bank may not approve the short sale.
- The bank could come back with a higher purchase price than the accepted offer based on the findings of the appraisal or BPO. This may also be higher than the initial advertised listing price.
- Getting the bank approval could take longer than the buyer can wait.
- The sellers credit will be damaged for at least 3 years (compared to 7 years for a foreclosure).
- The bank may not forgive the deficiency completely ( they could send a 1099 in order for the seller to claim the deficiency as income, or they may make you agree to pay on the remaining balance as an unsecured note over an agreed upon time frame).
- The bank may not approve the short sale and the foreclosure process takes place.
What are the benefits in a short sale transaction?
When a buyer is able to wait out the process, and the seller and their listing agent are able to obtain an approval, both the seller and buyer will benefit. Let’s take a look at what the benefits can be on both sides of the transaction.
- Many times it is a move in ready house at a bank owned price.
- Better alternative than foreclosure.
- Get to stay in the house while you are working through the short sale process.
- Credit damage is minimal compared to foreclosure.
“Working with an agent that is knowledgeable and experienced in dealing with these types of properties is very important. Brandon and Louis have the knowledge and expertise to help you navigate through the bank’s processes. Call us today to get started on your home search!” — client