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What is the process of a short sale

  • September 04 2012 - Northwest
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Answers (6)

sorry my post was too long so had to post in 2 pieces.  Read the bottom one first for it to make sense.
  • September 06 2012
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There are different requirements for people that are self employed vs salary but here is a brief rundown.  There is also some requirements for people in the military.  Additional procedures if there is a tax lien or if there is a second lien.
 
The bank will have a package that they want you to submit.
last 2 pay stubs
 any rental income
Tax returns for 2 years
any other statements that you receive income from ie child support, disability,  pension, etc.
bank statements
an expense statement detailing what your expenditures are, this would include what your monthly spendings are on food, utilities, gas, entertainment, cell phone, toiletries etc.

The bank will then order a BPO from a local Realtor, not the listing agent.  This is a mini appraisal and details the condition of the home.

Every banks will suggest the list price based on the BPO, not the seller.  This has changed a lot lately because too many sellers and agents list the home at an unrealistic prices to get offers causing even lower offers.

As a seller you cannot walk away with any money at closing.  Right now you can qualify to purchase a home 3 days after successfully closing on a short sale, but as we know, these laws change frequently.

Good luck,

Naima
  • September 06 2012
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Speaking as a Realtor and loss mitigation consultant for several banks such as BOA, Citi and Wells Fargo.

Your first step is to ascertain that you want to do a short sale.  Just because you are upstide down on your house doesn't mean that you need to sell.  You may qualify for a loan modification and get a refinance deal from your bank with an interest rate as low as 2% and even lower.

Banks do not want to foreclose, they want to keep you in your house and want you to make payments even if it means they won't make as much money as they do now.

If after you have decided that a short sale is your only recourse for whatever reasons you need to do the following:

You have to qualify for a short sale.  You must prove to the bank that you have had a significant income change or circumstances in your life that have inpacted your finances.

Not enough Realtors get the necessary training to help a homeowner with a short sale.  Make sure you get a qualified Realtor with a proven track records in short sales.  Your Realtor will have to work very closely with the bank or with the company they have assigned to handle the short sale for them.  Some small banks don't have a loss mitigation department so they outsouce the job to a 3rd party.
  • September 06 2012
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Profile picture for B Mike West
I think the first step in the short sale process is to select a Realtor who is familiar with the short sale process and trained in short sales.  Without that your chances of completing a successful short sale are much lower.

That trained individual will discuss the sellers financial situation  and determine if there is a financial hardship that the lender may seriously consider approving.  They will also look at how many lenders hold paper on the property, who they are and how likely they will be to approve a short sale request. (Some lenders are easier to deal with than others.)  If they think that there is a chance of success, they will go over the entire process with the seller in detail.

If all lights are green, the property is listed and they try to find a qualified buyer.  When one is found who submits a reasonable offer it is sent to the lender for consideration and approval.

There is a ton of paperwork and the seller will have to provide proof of income, assets and financial hardship.  It takes a long time.  Constant communication is necessary with the buyer or the buyer will get tired of waiting and walk away.

Approval frequently comes with conditions which the seller and buyer may be able to accept or they may not.  Once an acceptable approval is given the seller may or may not get a LITTLE moving money, but nothing else.  HOWEVER, they will be able to walk away with their head held high, because they negotiated with the lender(s) and made a deal.  The impact on the seller's credit is usually not as bad as a foreclosure of bankruptcy.
  • September 04 2012
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Profile picture for Matt Hiatt
Short sales are like a backward sales, first the seller who owes more than their home is worth and has a hardship puts his home on the market for what he thinks the bank will take (usually the market value based on listing agents comps). Once the seller has a contract from qualified buyer (financing or cash), THEN the paperwork with the offer gets submitted to the bank to approve. This is what takes the most time, when the bank gets around to looking at it. The bank can then approve it, reject it, or ask for a higher price. If the seller has a second mortgage, then both banks have to approve it. If buying  short sale, remember, you have to have patience (average time is 3-6 months, but the banks are getting better), and you may not get the home if the bank rejects it or it goes into foreclosure before the short sale is approved.
  • September 04 2012
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Great question! Short question but not a short answer.

The initial sale process (finding a buyer) is done just like a regular sale, and the seller accepts the offer "subject to lender approval". There is a valid sale contract at that point.

The seller then send the offer to the lender, together with a "Hardship Package" that explains why the lender should agree to the sale. These vary with the lender and an experienced Short Sale Listing Agent knows how it should be presented.

Then you wait for a response from the lender.

It will take a while.

Eventually, the lender will probably arrange for a valuation to be carried out (could be an appraisal or a BPO) and the lender then tells the seller what price they will accept.

Assuming the buyer is still around, there may then be some renegotiation. If not, then everything could start again.

Crazy process but that's how it works. The key to success is having an agent who understands how to make it come together,
  • September 04 2012
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