As a short sale specialist I hear "What are the steps to a short sale?" "Why do short sales take so long?" These are the questions that I am asked each time the topic of short sale enters a conversation, which these days, is pretty often!
So here is how it works:
The Short Sale Process
1. Listing agent gathers all of the following paperwork from seller:
a. Loan statements
b. Bank statements showing their income
c. Paycheck stubs
d. Last year's tax return
e. W-2s for current year if taxes not field yet (or 2 yrs tax returns)
f. Hardship letter explaining why they must do a short sale
g. Profit and loss statement
h. Liability statement which is similar to a loan application
i. Letter authorizing the agent to talk to the bank about the sellers loan
j. Offer to purchase the property
k. HUD 1 showing what the net to the seller would be. (This document comes from an escrow officer at a title company).
If the agent negotiating for the sellers does not know how to instruct the escrow officer to do the HUD, the entire file can fail at any point during the process.
Basically, by providing all of this information to the bank, the seller is applying to get out of the loan, just as they applied to get the loan. They must qualify by the banks guidelines for the short sale. This huge pile of information called a short sale packet, if there is no offer the package is incomplete. The bank(s) will also want updated pay stubs and bank statements as the process progresses to make sure the homeowner truly cannot afford to make the payments.
2. All of this paperwork is submitted to the Loss Mitigation department at the bank. This department is different than the foreclosure department, and may not know anything about what the foreclosure department is working towards on this particular property. The first person to touch the file from the loss mitigation department is a customer service rrepresentative. This person uploads the file into the banks automated system. It can take -3-4 days for this to happen, (sometimes more depending on the bank) sometimes you have to call several times during the first week just to make sure that the file has been uploaded into the system. A few banks have gotten wise to how long this step is, and have made portals on the web for real estate agents to upload directly into the banks system. If the bank requires that you send the documents to them via fax, many times we hear that they don't have the file, that they are missing pages from the file, or that the file is not in the system so the file is re-faxed several times. This can take a few days to a few weeks. Without the customer service department changing the information in the banks system to notify the bank that a full short sale file is ready to be review, the real estate agane may have to start all over again.
3. Once they have the file, and it is uploaded into their system, it is reviewed for completeness. This can take another week or so, as the file is reviewed many times, by someone other than the initial customer service rep that uploaded the file in the first place. Once reviewed for completeness, the file is sent to a Level 1 negotiator. This negotiator looks over the file and makes sure that all of the documents in the short sale package are correct, current, and then they may ask the seller to provide more documents, documents that are not always requested in a basic package. The Level 1 negotiator can determine who the file goes to next depending on the end investor on a particular loan.
4. If the offer from the buyer looks good (and again this varies from bank to bank) they will move to the next level negotiator that will order the BPO (a BPO is a mini appraisal, the letters stand for Broker's Price Opinion) to determine value. This is a tricky step. I find that some of the banks use 3rd party firms to order the BPOs and the agents doing the BPOs sometimes turn out to be REO agents (REO stands for Real Estate Owned, meaning real estate owned by the bank) REO agents that will inflate the value of the house thinking that if the short sale does not go through, then they will get the listing when the bank forecloses on the property. This means more business and ultimately more money for that REO agent; this is not always the case, but something to be aware of.
5. Once the offer is reviewed by the bank, the BPO has been returned and the offer and the BPO are close enough in pricethat the bank feels the offer is good, or the offer fits into the formula they are using at the time, the offer is sent to end investor. This "End Investor" is to person or company that purchased the loan from the bank; usually it was sold to this end investor in a package of similar loans. These loan packages are bought and sold on Wall Street, and many are sold to Fannie Mae, and Freddie Mac, government backed companies. At this point, the offer is then reviewed by the end investor, or a loss mitigator from the end investor's company. Depending on the case load of this company or individual, this can take between 2 days and 2 months. Remember, just because the bank the seller makes payments to is listed as WXYZ Bank, (this bank may only be the loan servicer) the loan may have been sold to BCD Bank.
6. If Fannie or Freddie are the investor, the offer is totally scrutinized, they look at the value and determine if the price is within their guidelines, they actually have software that determines the fair market value (where their numbers come from, who knows). Fannie has their own staff that must look at all files and determine if they will accept the new offer or not.
7. If there is MI (mortgage insurance) then the mortgage insurance company will look at the offer and determine if they will accept the offer, based on the amount of loss they will incur.
8. Once everyone has agreed to the new offer, they will send a letter to the listing agent stating that they will accept the offer with a certain amount listed in the letter as net to the bank. If there is a second lender, the first will typically offer between $2000 and $3000 to the second lien holder. This is the point where things can get very difficult, as the second lien holder will go through all of the steps above, and review the offer and the short sale package just like the lender in first position did. If the second lender will not take the $2000 - $3000 offered them by the first lender, they can force the foreclosure or, more common; ask the buyer or seller or both to make a cash contribution to the second lien holder directly. Of course, if the seller could do this, they wouldn't be asking for a short sale. Sometimes the first or the second will ask the homeowner to take back an unsecured note payable over 15 to 20 years. If the seller refuses to take the note, then the house will go to foreclosure.
9. If the letter from the bank accepting the short sale is clean, meaning that there are no hidden meanings for the lender to come back to the seller at a future date and seek to collect some of the deficiency, and it states there is approval of the short sale by all parties, then you move to closing very quickly after that approval is received by the listing agent. Typically the bank will only give the buyer 30 days to close at the price they have agreed to. Some lenders state in the letter that if the transaction does not close in that 30 day period, they may demand a per diem of $75 to $150 to be paid to the first lender, if the buyer goes past the time. I have had very good luck in either closing the transaction in that 30 day window, or begging successfully to have the per diem waived. Some lenders however are sticklers, and depending on if the offer is the first offer (as many times the buyer will not stay in the transaction for this lengthy process) sometimes if the transaction has dragged on and on, the lender will simply sends the file to the foreclosure department.
1- 1 to 2 weeks to a month
2- 1-to 2 weeks can be as long as a month
3- 3- 4 weeks
4- 1-2 weeks
5- 2 weeks
6- 2-3 weeks some faster some slower
7- 3 weeks additional time if Fannie or Freddie
8- MI 1-4 weeks, depending on the MI company
9- Second lender - usually done at the same time as the first, if the negotiator knows what they are doing they tell the first that the second has already agreed and tell the second that the first has already agreed
10- 3-5 days to get the letter, sometimes up to a week or two if the lender is understaffed
The typical timeline for a short sale from start to finish can be a quick as 60-90 days, and can take as long as 2 years, depending on the lender.
The steps to a short sale, are not necessiarily short, but if you know what to expect, it can make the process easier to wait through.
If you need to sell your house short, or if you are interested in buying a short sale house in the Portland, Oregon or Vancouver, Washington area contact Denice Neddo, Certified Short Sale Broker in Washington and Oregon 503-756-9759 or 360-607-4226 email@example.com