Short Sale Frequently Asked Questions

By
Real Estate Broker/Owner with Coldwell Banker Sky Ridge Realty

What is a "Short Sale"?

A short sale is when a homeowner owes more than the property is currently worth at market rate.  The bank(s) holding the trust deed(s) negotiate with the homeowner and accept a lesser amount than is owed, hence they are "short".  (also referred to commonly as "upside down")

What are the basics in a short sale transaction?

A typical short sale involves many steps that are transparent to the buyer, but can take significant time.  Approval of a short sale is dependent upon an agent representing the seller submitting a complete short sale package.  That package contains information the bank will need to evaluate the offer and potential short fall.  The first mistake often made is not preparing and organizing the required documentation in an effective manner.  Generally, once the complete package has been received, it can take up to 2 weeks for a bank to assign a negotiator to evaluate the deal.  If the basic criteria is met, the negotiator then assigns an independent agent, or appraiser to prepare a "Broker Price Opinion (BPO) to establish an independent value.  This BPO is used by the bank to establish value and evaluate whether or not to accept the short fall.  Once approved, the short sale lender will issue an approval letter to the homeowner/agents outlining the terms by which it will authorize the sale, along with the date by which escrow must close or the authorization may expire.  A reasonable expectation with an agent who competently assembles the package and follows up with the lender(s) would be a 30 to 45 day addition to the normal escrow period.  Any longer than this and something is wrong.

What kind of offer is going to be most acceptable to the bank?  I really want this house!

The bank is interested in only one thing "the bottom line"... how much will go to the bank at the close of escrow.  Part of the package submitted to the bank is a sellers net proceeds document which is generally prepared by the escrow company who is going to handle the transaction.  This document clearly identifys all the fees involved in the transaction and the projected "net" to the bank.  Banks are looking for clean deals.  The cleaner the deal, the easier the approval process will be.  The best kind of offer is a clean offer.  No contingencies, minimal seller concessions.  If the buyer needs to have the seller pay costs on their behalf, or if there are other required concessions, the deal may not happen.

How long can I really expect from the time I write the offer to the time we close?

Understand that there are two sometimes 3 approvals that must be obtained to close a short sale transaction.  First the homeowner (seller) must approve the contract then the contract must be approved by the lender(s).  If a seller has a first and a second on the property, both the first and second must approve.  Even if the lender is the same for the first and second, an approval will be required for each loan because the first and second will be completely different departments.  Keep in mind that there are factors outside of everyones control.  Changes by the buyer and seller midstream can also affect the timeline.  As said above, if done correctly 30 to 45 days more than a normal 30 day transaction is what should be expected.

What happens if the property is foreclosed upon?  Is my offer protected?

No.  Often if negotiated correctly the Broker can forstall the foreclosure process, but not in every instance.  It happens frequently that the process is mishandled and too much time lapses and the lender forecloses on the property.  If this happens any negotiated offers and agreements are voided.  Even if they buyer has invested dollars inito the transaction, the transaction is void.  This makes the communication process even more critical in that more than the opportunity to purchase the home can be lost.

Are short sales a good value?  Would you buy one?

Yes, to both questions.  Although the process can be extended, some of the best values in our market are currently being bought in this manner.  It is important for both agents involved in the transaction to understand and be willing to implement the process.  In order for a transaction of this type to happen, it must be a cooperative effort between all parties.

Where do I get more information about the process?

Contact me directly at steve@cbskyridge.com or contact me at my office at 909.336.2131.  I have numerous agents who understand the process and can assist you in either selling a property using the short sale process, or purchasing a property that is a short sale. 

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