From Listing to Lender Approval
The short sale process is still a mystery to many people, including a lot of Real Estate Agents, even after all these years. Lots of buyer’s agents are confused; puzzled buyers are looking for direction, and you may be surprised that not every short sale listing agent knows how to do a short sale.
The Basics of a Short Sale
Banks grant short sales for 2 reasons: the seller has a hardship, and there is not enough equity in the home to pay off the mortgage after paying costs of sale.
A few examples of a hardship are:
- Unemployment / reduced income
- Medical emergency
- Job transfer out of town
The listing agent will have the seller provide certain paperwork that will be needed to prepare the financial package for submission to the short sale lender. Each lender has its own guidelines but the basic procedure is similar from bank to bank. The seller’s short sale package will most likely consist of:
- Letter of authorization, which lets your agent speak to the bank.
- Completed financial statement
- Seller’s hardship letter
- 2 years of tax returns
- 2 years of W-2s
- 30 days of payroll stubs
- Last 2 months of bank statements
- Comparative market analysis or list of recent comparable sales
Writing the Short Sale Offer and Submitting to the Bank
Before a buyer writes a short sale offer, a buyer should ask his or her agent for a list of comparable sales. Banks are not in the business of releasing mortgage obligations at rock-bottom pricing. The bank will want to receive somewhat close to market value.
After the seller accepts the offer, the listing agent will send the following items to the bank:
- Listing agreement
- Executed purchase offer
- HUD-1 or preliminary net sheet
- Buyer’s pre-approval letter, copy of earnest money check and proof of funds
- Seller’s short sale package
If the package is incomplete, the short sale process will be delayed.
The Lender Short Sale Process
Following is a typical short sale process at the bank:
- Bank acknowledges receipt of the file. This can take 10 days to a month.
- A negotiator is assigned. This can take a week to 60 days.
- A BPO is ordered. The bank probably will refuse to share the results of the BPO.
- A second negotiator may be assigned. 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 may then request that all parties sign an Arm’s-Length Affidavit.
- The bank issues a short sale approval letter.
- The buyer cancels, sometimes.
Buyers get angry and annoyed because the short sale process can be so lengthy that they sometimes cancel without telling anyone, much less the seller. Some short sales get approval in 2 to 8 weeks. Others can take 90 to 120 days, on average. The length of the short sale generally depends on the investor, not the bank. If buyers are the type with little patience, perhaps a short sale is not for them.
Tip: Much of the time, the listing agent will have some idea of when approval will come after the file is sent for final review. At that point, buyers may want to start the loan process so they’ve got a head start in case the bank allows only a few weeks to close.