Short Sales

A short sale is a process in which a lender allows the owner of real estate to sell a property for less than the amount owed on the mortgage. This usually occurs when the market values of real estate drop and a property is worth much less than the current mortgage balance. A bank or lender may allow a property owner to sell the property for less than the amount owed to avoid the lengthy and expensive foreclosure process. Some short sales are facilitated by a loss mitigator at the lender as well as a short sale negotiator who interacts with the real estate agents handling the transaction.

Since short sale transactions are subject to the lender's approval, and since the lender may or may not approve the short sale, such transactions have no assurance of completing. If a lender refuses to accept a short sale on a property, he may foreclose on the property and then it becomes bank-owned.

The term “short sale” refers to the fact that the lender who holds the mortgage on the property will be receiving less or short of what he is owed. It does not refer to the duration of the transaction. Because the short pay lender incurs a financial loss in a short sale transaction, the lender goes through a lengthy process of evaluating the financial situation of the seller and the property. Short sale transactions take much longer than normal sales transactions, sometimes taking several months or longer to complete.

The term “short sale” definitely does not refer to the transaction time which can be months in duration. A short sale is a long process, which from beginning to bank approval takes several months.

Below are the key steps in a short sale:

1. Purchase offer is submitted by buyer to the seller.
2. Seller accepts offer.
3. Collect the following paperwork from the seller and buyer (1 week):

• Hardship letter from seller

• Third Party Authorization from seller

• Financial statement from seller

• Last two month’s of bank statements from the seller

• Last two month’s of paycheck stubs from the seller

• Last two year’s tax returns from the seller

• Buyer’s proof of funds

• Buyer’s pre-approval letter from their lender

• Estimated settlement statement (HUD-1) from escrow

4. Submit the above items to seller’s lender. It takes up to 72 hours to upload the documents onto the lender’s system.
5. Stage 1: Takes up to 30 days to review the preliminary package and order the Broker’s Price Opinion (BPO).
6. Stage 2: Send the package to the supervisor for review (up to 30-45 days)
7. Stage 3: Assign to a negotiator to negotiate with investor with all the terms regarding the short payoff amount and deficiency amount (up to 30-60 days).
8. During the process, the seller has to update their bank statement(s) and paycheck stub(s) until the short sale is approved. Many times the seller does not respond to the request from the lender right away.
9. If there is second trust deed from a second lender, it takes even longer time to get both lenders to agree on both short payoffs.

Short sale homes tend to have lower prices than regular sales and bank-owned foreclosure properties. The condition of short sale homes is usually inferior to regular sale properties.

Warning! There is no assurance that a short sale transaction will be completed. Sometimes, the lender(s) do not approve the short sale. Other times, the lender(s) may decide to foreclose on the property. This is why short sale transactions are lengthy, uncertain, frustrating, and difficult.