Why Do Short Sales Take So Long?
Mike Linkenauger wrote an excellent and informative post explaining the short sale process. This information will help homeowners understand why the short sale process can take so long, and what they can do to help make the transaction move as quickly as possible.
Why Do Short Sales Take So Long To Complete?
For the homeowner anxious to complete a short sale and move on with their lives, the long, drawn out short sale process can feel like an eternity. Regular listings close approximately 30 days after listing on average – faster if it’s a hot market. Real Estate short sales on the other hand, take between 3 months to a year on average from offer to closing. Why do short sales take so long to complete when compared to regular home listings?
Short Sale Process
To better understand why the short sale process takes so long, it’s important to have a bird’s eye view of the overall short sale process. The short sale process starts with the hiring of the listing agent – the Realtor who will handle your short sale. This is perhaps the most crucial component of a successful short sale. While there are many otherwise good Realtors who can take on your listing, short sales are a niche, complicated area of Real Estate that requires specialization. You’ll want to find a short sale Realtor with a significant amount of experience in short sale transactions and working with your lender who can ensure that every step of the short sale process is completed expeditiously.
Your Realtor will then put your home on the market, similar to the way they would for any other home sale. Buyers will submit their offers, and if a suitable offer is submitted, your short sale Realtor will submit the offer to your lender, along with the listing agreement, the buyer’s financing preapproval letter (if required), earnest money deposit, and your short sale package. At this stage, the short sale approval process begins, and the waiting game begins for you as the homeowner. However, the ball is not entirely out of your court if you have an experienced short sale specialist working for you.
As your bank processes your short sale package and the buyer’s offer – which may take several weeks or even months – your Realtor will be negotiating with your lender, and pushing the short sale process forward. If your lender is satisfied with the contents of your short sale package, the buyer’s offer, and the terms your short sale specialist has negotiated, then you will receive approval to proceed with the short sale. Once the bank has granted short sale approval, the rest of the transaction closes like a regular listing, provided the buyer’s financing is still in order. With the lengthy short sale approval process, sometimes a buyer’s financial situation can change drastically.
Short Sale Time Frame Delays
So, where during this process does a short sale get held up, and why is the short sale time frame so much longer than that of a regular listing? The delay doesn’t occur during the listing process, as short sale properties usually receive offers at the same rate as any other similar property. It’s not during the closing, as this generally proceeds the same way as a regular closing. So what’s the hold up? Short sale delays are a result of slow processing times during the short sale approval process. There are several factors that contribute to slow short sale approval and processing.
Delayed Submission of Short Sale Package
A short sale requires a significant amount of paperwork and documentation, much more than for a regular house sale. Once the short sale Realtor has received a suitable offer, the Realtor and homeowner must prepare a short sale package and submit it to the bank, along with the executed purchase offer, the buyer’s financing pre-approval, the listing agreement, as well as the earnest money deposit check in order to formally commence the short sale approval process. Often, an inexperienced or slow Realtor can delay the submission of the required documentation. Because the bank cannot start the short sale approval process without the required documentation, this can often result in unnecessary delays.
Banks Are Overwhelmed With Short Sale Applications
Some banks have faster processing times than others. One of the key delaying factors in a short sale is the bank’s own internal processing time for short sale applications. Many banks and lenders are simply overwhelmed with the volume of short sale applications they receive and need to process. There is a bureaucratic system in place to handle short sales, but it is often overloaded with a high volume of short sales that require processing
Delegated Authority Between Investors and Loan Servicers
Often, the lender you deal with is simply the servicer of your loan, meaning they are paid to process your loan, but they are not the actually equitable owners of your loan. Many home mortgages are actually owned by 3rd party mortgage investment funds, and not the lender or bank with which you deal on a regular basis. This adds another layer of bureaucracy that can further delay your short sale approval.
While the loan servicer – your lender – is often given authority to approve short sales that fall within a certain price range, on occasion they may also need to seek approval from the loan investor before they themselves can approve your short sale application. Given that your lender will also need to await a decision from the loan investor – and you and your agent have no way to expedite the process between them – this can often add months onto the already lengthy short sale time frame.
Mortgage Insurance
Another potential delay involves your lender’s mortgage insurance policy. Your lender may have an insurance policy in place to protect them against default. In such cases, the mortgage insurance company is another 3rdparty that needs to approve the short sale, before your lender can approve the transaction.
Speeding Up Short Sale Approval
While there is little you can do to expedite delays caused by the bank’s internal bureaucracy or 3rd party approvals, you can submit your completed short sale package promptly with the assistance of a good short sale Realtor, who can ensure that all the necessary documentation is properly included in your short sale package. You can also hire a short sale specialist who will handle all back and forth with the bank. There are many internal issues that can slow a short sale approval down, and an experienced short sale Realtor who has worked with your lender in the past can work with your lender to expedite the process as much as possible. While some patience on your part will still be necessary, hiring a short sale Realtor with a track record of successfully completed short sales will greatly increase your chances of having your short sale approved and completed in a timely fashion.
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