For many people, there is nothing more frustrating than dealing with a short sale. Whether they are the seller, a potential buyer or a realtor on either side of the transaction they can be nerve racking to deal with. Why are they difficult? Simply put there are a large number of variables and the process is generally a slow one. If you become involved in a short sale, regardless of direction your involvement comes from, it helps to have a good understanding of the process.
A short sale (which is when a seller is asking the bank to accept less than what they owe on their mortgage to facilitate a sale) all begins with the seller establishing or documenting a hardship situation with the bank. Generally, they do this with their listing agent who will have them write a hardship letter that explains to the bank why they are unable to afford the payments on their home. Usually (although not always), this step is taken after the owner of the home has fallen behind on their mortgage and don't foresee the ability to get caught up. Hardships usually involve life changing events..loss of job, health problems, divorce, loss of a spouse, etc) Along with the hardship letter, the bank requests financial documentation from the owner to help substantiate the inability to repay the loan. Paycheck stubs, bank statements, tax returns, w2 forms, pension or social security checks, etc. All of this information is sent to the bank (usually by the listing agent or a lawyer or handles short sales for the brokerage or occasionally by an investor trying to by the home. (anyone involved other than the seller must provide the bank a release from the seller to discuss the loan) The unfortunate part of this process is that the bank usually doesn't start working on a short sale until there is an actual written sales contract in front of them.
The listing agent will evaluate the market and try to put a price on the property low enough to attract buyers, but high enough that the bank has a good chance of accepting the offer (this is what is meant by 3rd party approval) The biggest problem with this is that the banks are simply that...banks. They don't have knowledge of local real estate markets and the bank isn't the only one involved in the decision. There are investors that are tied to those mortgages and insurance on those mortgages and just like anyone else in the market place, those entities don't want to lose money. All of these levels of interaction make the process proceed slowly. If a sales contract is placed in front of the bank AND IF the bank decides the owner is eligible for them to consider a short sale, the bank will send out an appraiser or a BPO agent to evaluate the house and put a value on it. Getting this BPO price is usually the biggest variable in the equation. Depending on the value that the bank determines on the home will decide whether they want to actually proceed with a short sale or simply let the home go to foreclosure. It's all a matter of dollars and cents to them. (At least, that's their story. Frequently they are unwilling to look at the realty of the real estate market and the cost that a foreclosure will actually reach) After the BPO is done they will usually communicate a price that they are willing to take for the property. (frequently this price seems to have almost no correlation to the offered sales price) The success of short sales really comes down to the quality and experience of the listing agent and their company. If the listing agent is well skilled or the brokerage uses experienced real estate lawyer to handle the negotiations, there is a much greater chance of success in putting the transaction together. Once a price is determined, the potential buyer is usually given 60 days to complete the transaction. How long does it take to get to that point? Good questions...it varies greatly depending on the bank, how strong the offer the property it is, time of year in comparison to the bank's fiscal quarter, etc. There are some banks that have reached a reasonable time frame to process a short sale, but many of them haven't. They can run anywhere from 2 months to over a year. Keep all of this in mind if you are considering making an offer on a short sale. Have your realtor find out the level of experience the listing agent has and/or if they are using a lawyer for negotiation.
There are many other details to the short sale process. If you would like to learn more or might be looking at a short sale situation, please call me.
My name is Keith Kruger and I'm YOUR local real estate resource. I specialize in residential investment and commercial property in South Jersey and Philadelphia with a special emphasis on historical properties. I also work with buyers and sellers in my hometown of Marlton, Cherry Hill and Mt Laurel, New Jersey as well as surrounding areas.
