WHAT IS A SHORT SALE?
A short sale occurs when a home’s sale value is less than the outstanding mortgage debt plus the cost of the sale AND the bank holding the note agrees to write off a portion of the outstanding loan debt in order to consummate the sale.
Lenders will entertain a short sale if they believe they will receive a higher percentage of their principal back compared to forcing the property into foreclosure. Foreclosure from a banks perspective runs the risk of property damage or neglect, additional delays and costs and the possibility of the owner filing bankruptcy. Reports indicate a foreclosure may cost a bank $50,000 - $60,000. From a business standpoint, it makes sense for the bank to allow approval of a short sale.
In order to obtain short sale to be approval the realtor must prove:
· Financial hardship of the owner substantiating why they cannot stay current with their mortgage.
· A ready, able and willing buyer who has entered into a valid purchase and sale agreement and can show proof of availability of funds. Banks will not allow a purchase and sale that is contingent upon the buyer’s current property being sold.
· The sales price is at or close to fair market value based on the recent sales of other homes in the area and the current real estate market conditions.
Banks are not in the business of giving away homes at rock bottom prices. The bank wants to receive close to market value. Lenders are not in business to own homes, but that does not mean they make the approval of a short sale an easy or fast alternative. Lenders are not properly staffed to handle the number of short sale requests.
If the buyers have little patience, a short sale purchase is not for them as the sale can realistically take up to 9 months to complete. If the buyer decides to cancel, then the transaction starts over which can happen several times.
A TYPICAL PROCESS
Bank acknowledges receipt of the file. Up to 30 days
A negotiator is assigned Up to 60 days
A BPO is ordered Up to 30 days
A second negotiator is assigned Up to 30 days
The file is sent to review Up to 90 days
The bank requests all parties sign an arm’s length affidavit
The bank issues a short sale approval letter or renegotiates the price.
Each bank is different regarding short sale processing time and the only constant is change. Buyers don’t usually get a fabulous deal when they purchase a short sale as the bank is likely to approve only sales prices that are close to market value. The buyers benefit is that they get the home they wanted….sometimes after a long wait.