I am surprised at the wide variety of answers below. My team and I have closed over 100 short sales in the last 2.5 years and I can tell you from tried-and-true experience that a new offer DOES NOT automatically start the process over. That used to be the case with some lenders, especially Countrywide prior to BofA's acquisition.
The one thing I can tell you is that every single short sale is different. Every loan is different. It may be held in house or owned by an outside investor, or perhaps backed by Fannie Mae or Freddie Mac.
However, there is a defined "guideline-driven" process to getting a short sale approved and it occurs in 4 phases:
Phase 1 is the file intake process. This is when you send in the complete short sale package and everything is gathered up - listing documents, offer documents, seller's hardship documents. Until all the "checkboxes" on the list are filled in, the file does not move to Phase 2.
Phase 2 is the valuation stage. This is when either a BPO is ordered (Broker Price Opinion) or a full appraisal, to determine the market value range. Once the valuation is complete, the file is marked "complete" and moves on.
Phase 3 is the negotiation stage. The file is passed from the level 1 processors to a loss mitigator who is usually a level 2 employee who can make decisions and is authorized to make demands based on the bank's and/or investor's policies and guidelines. It's during this process that the REO vs. Short Sale calculation is made to determine whether or not it makes sense for the bank to approve and at what price, if a seller contribution will be required, etc. This is also when any negotiation with junior lienholders will take place as well. Once the preliminary agreement is reached, the file moves on.
Phase 4 is approval. Generally, most short sales must be signed off on by senior management, an outside investor, or a PMI company. If the loss severity is under a certain threshold, the loss mitigator may have desktop approval authorization, if not, it must be approved by the higher-ups. Once the short sale is approved, the file moves on to the "closer". This person is responsible for monitoring the closing and delivers escrow instructions to Title Company.
The reason I tell you all this is because you can see that clearly, the file does not have to go through Phase 1 again, and if the valuation is current, it does not need to go through Phase 2 either. At most, the HUD-1 will need to be re-approved by the loss mitigator, and any changes (such as contributions to an HOA or otherwise, need to be agreed to). In terms of timeline, you may only have to wait a couple of weeks to have the loss mitigator review the new offer and HUD-1 and re-approve the sale.
Experience shows that if the minimum net payoff is achieved with this new offer, overage funds may be applied to get junior lien holders to release their liens.
As far as your earnest money deposit, 1 of two things happened: 1) the box on Line B2 was not checked, authorizing the seller to put your deposit into escrow, or 2) there was no Short Sale Addendum all together. you should find this out.
I wish you the best of luck with the purchase.
Bart Marchioni, Real Estate Consultant
Certified Pre-Foreclosure & Short Sale Specialist
The M.O.R.E. Consultants Team @ Keller Williams Realty - Silicon Valley
2110 S. Bascom Ave #101, Campbell, CA 95008
Trikaal, as you have found out, short sales are a P.I.T.A. (pain in the assets). It sounds like you really want this property and the parties are working towards making that happen. It may be a bit wonky - not as smooth as it could be, yet it may eventually get there. I suggest you keep the communication open with your agent and they as well with the seller's agent. This should alleviate some of your concerns with the unknown. Then patience. That may be all you can do right now.
Best of luck to you.
The offer price is less. The first calls most shots. So if the offer is less than what they are willing to accept and more to the second than they are willing to share this could tie it up. Also, since the sale didn't go through as planned, there are other fees now added up, property taxes, for example, so the bottom line to the banks is not the same as the first offer.
Your offer starts a new negotiation. Period. The plus is the both banks have the seller documents and may only require updated statements from the seller to proceed.
On another note, to all buyers of short sales and bank owned properties, please do not change the terms, prices, etc. after the offer is submitted to the bank, this too is a new negotiation. Short sales are long and frustrating and affect far more people than a traditional sale. Every single short sale is unique and there is not one formula to determine if it will go through as the rules keep changing, daily.
Now back to the earnest money deposit. That is a buyer choice to wait until approval or to deposit into escrow. The benefit of deposit into escrow gives the Seller a sense that the buyer will stick with it. The negative is it may be difficult to get it released to the buyer if things don't go as intended.
Good luck. Ask the seller agent to give your agent weekly updates.
Nothing in life is definite.......but you should be encouraged because you are at least heading in the right direction.
Another update. The differences between the info in HUD and offer have been resolved and everything sent to the bank. So now we are in the 'last stage' and waiting for the bank to get back. So does this mean that we are really in the final stage in terms of the amount of time I still need to wait. Does this sound like good progress.
Appreciate any inputs or thoughts.
Thanks for your reply. As you mention there are other delinquent payments which I may have to take care of and some others the lender has agreed to pay and I guess that itself makes it a short sale.
Thanks for pointing out about the auctions. I did check it for this house and its not any such list - atleast for now. The folks who do the loan mods don't talk to the folks who do the fore-closure/auction who don't talk to the agents doing the short sale. So all these 3 processes can run in parallel in which case the a short sale could get auctioned before the bank comes back with a yes or no on the short sale.
I suggest you check the scheduled auction date.
There has been at least 3 homes sold at sheriff sale recently where the properties show as pending have asked price higher than auctioned values. Granted, we do not know the accepted price. In fact, 10 days after auctioned off one listing still shows as ACTIVE implying the agents do not even know what went sour.
Well that is hard to say, if ALL liens are covered it would NOT be a short sale and would not need bank approval, but I don't know if property taxes have been paid they have probably not been paid as there are back HOA dues also that I see are being covered, does the seller have ANY money to cover closing cost? Usually short sellers have NO or LITTLE money to cover closing costs, so your purchase price would have to cover all of that and if it did I don't see how the home will appraise, the only way it would appraise is if the loans were small to begin with so there is that.
Other than that it will remain a short sale unless everything is covered as the seller usually just wants to wash there hands of the whole deal and not really willing or able to come up with much cash to contribute.
Thanks for your reply. The appraisal is one of the concerns I have but even if I am short I may not be short by a lot and the fed/state credit hopefully should cover for it to a good extent.
What I was curious to find out is how is the short sale treated when the offer made covers all lien holders and is not really a short sale in that sense.
To answer your question yes it is possible, but what you would then worry about if your offer is that high is will it appraise at that price? Most often it won't then appraise at that high price, but it is possible to have both the appraisel and enough so that it is no longer a short sale it's just highly improbable the market has not recovered that much.
Hope that helps.
I thought I will provide an update - not a significant though. We were told the reason they en-cashed the check was they are sure that this short sale will go through within 2-3 weeks. Maybe they were right till they found out that they messed up with keeping the HUD and offer in sync and now it will take that much more time.
I had one more question. Is it possible that in short sale the offer is so high that the sale is no more 'short' in the sense that the offer is high enough to cover the amount due to all lein holders. Maybe my question does not make a lot of sense but I am still curious what happens if what I mention above is true.
Thanks for for yet another informative and helpful answer. Its good to know that the mitigators have some incentive to get to my file earlier. I have not heard back from the sellers agent for 5 days now after this last update in spite of my agent trying to reach her. So looks like I have at least one months' worth of wait even if I assume the Phase 3 is over.
Thanks for your answers. I will keep the forum updated as this case progresses. At the least, it will serve as a case study I hope and help others who are buying/selling short sales.
Trikkaal, in terms of the approval of your offer - it may be delayed by the amount of time it takes to get the revised HUD from Title and then get it back in front of the loss mitigator. They do, in fact, have literally hundreds of files they are working on, so on the part of the listing agent it takes good communication, firm yet pleasant persistence, and diligence to get the file back on top of the pile. But these mitigators are compensated by how many files they close each month, so they do know that they can close a previously-approved file relatively quickly and get it off their desk by reviewing your offer, the new HUD, re-approving it and passing it back to the closer.
Thanks for the quick reply.
From what you are saying the listing agent messed up in presenting the offer correctly. But does that in any way harm the possibility of this short sale. Do you think this will add a lot of delay? Does this at-least indicate that its very close to end of Phase 3?
I will be checking why the check was en-cashed - thats a violation of what they agreed to on paper. But then I will bother much about it if I am very close to getting this short sale. Problem is there is no way to find that out.
Thanks again for you help.
Ok, as for your first question: You're probably right, sounds like the valuation Phase will not be necessary again. Most appraisals are good for 3 months. Now, the loss mitigator had to remind the listing agent that the new contract didn't match the HUD? Well, surprise! (sarcasm exaggerated). The listing agent should have had the escrow officer update the HUD prior to sending in your offer. Nothing ticks off a mitigator more than to re-open the file and spend precious time on it to find rookie mistakes like that.
Second question- Hmmmm. If the box on line 2B was checked, then the deposit check should NOT have been deposited. Again, you're right, now it IS more difficult for you to walk, because it'll be a bit of a hassle getting your money out of escrow quickly.
Let me know if you have more questions.
I had one more follow up to your reply. I checked the docs and see that the short sale addendum was added and the box on Line B2 WAS checked. So the check should have been en-cashed.
So are they using this to make sure it becomes difficult for me to walk away from this sale.
Thanks for your offer to help.
From what you are saying the negotiator is the key. So how will this work. My agents calls you to get the law firm's info and then contact them. What exactly do they do to help the situation. If you can please share this info. If you cannot I perfectly understand if such info cannot be told in the public domain.
Thanks a lot for the detailed reply which is really helpful.
As the short sale was approved in Feb (but buyer had walked away) and we made the offer in very early Arpil, I would assume that the valuation has not changed. Even if it has, so has the offer price (gone up 8% which should be more than any increase in valuation). So Phase 2 is probably not needed I am guessing.
The sellers agent updated us last week saying the negotiator found that the HUD and info in the contract did not match and had to go back to escrow for rework. Its under review and they need to plug in new numbers in the system and then get final management approval.I really don't know what to make of it. So maybe this part of Phase 3?
I would appreciate any reply.
Have your agent contact me and I can pass on the lawfirm that I use.
- There was a short sale addendum to the offer
- The title officer also seems very optimistic and did not wait to en-cash the check
- As per the agent's suggestion a new offer was made out which is higher than
the previous buyer but leaves some money from my original offer to pay HOA
and 2nd loan. So the first offer was not manipulated but a new one made out.
- My offer is much higher (8%) than the previous buyer
- the lender has agreed to pay prop taxes
So far I have learnt that one needs to get lucky with short sales. I also get the
impression that many short sales fail because buyers lose patience which is
justified. But if the short sale goes through, it gives a good head start to the
buyer in terms of building equity. But then I could be totally wrong.
Your agent is optimistic but I would say your agent’s comments are wishful thinking. The differences in your offer from the first buyer’s offer will only serve to give the lender a reason to start the process over. The lender is still the one who will be calling the shots. You can propose any conditions that you want to, keep your fingers crossed, listen to all of the opinions that you want to but until you get the lender’s approval nothing is certain.
Short sales are always challenging. Good luck. I hope everything works out well for you.
I agree with Bill that the way the agent is manipulating he offer to pay second and HOA could be considered fraud. I am also surprised that the agent representing you did not complete a short sale addendum which would have you holding your own deposit until lender approval was received and a ratified contract secured.
I also agree with Bill that once the first buyer walked the file came out of processing and back to the negotiators desk. More importantly, in the order it was received not to the top. It can be pushed and in my experience and it takes a lot of work on the agent's part to keep the second buyer in front of the lender's negotiator nose. I would also add that your agent should be checking on the trustee sale date to make sure that continues to be extended until the review is complete.
Based on what you describe you need to be aware of 2 things:
1. Having a previous offer accepted is meaningless. You do not step into that buyers shoes. In practice the complete process starts over anew with your offer.
2. You and both agents are treading on very thin ice in the way you are modifying your offer to get payoffs to the 2nd lender and the HOA. This is potentially fraud against the 1st lender and I strongly advise you personally to consult a real estate attorney before going ahead with this strategy.
From what you say, it seems more likely than not that you will be successful. The second buyer is in a much better position than the first. However, I wouldn't assume that the bank will easily agree to pay off the HOA and the 2nd.
Another thing concerns me; why did the escrow company deposit your check? If you had used the Short Sale Addendum (CAR form SSA), you would have had the opportunity for your agent to hold the check uncashed until final bank approval, instead of when the seller accepts. Another matter that this form addresses is when the contingency periods start. Your contingencies may need to be removed prior to final bank approval. Your deposit could become at risk.
Another good sign is if the seller's agent has good access to the bank negotiators. That agent is really another advocate for you and for the deal to go through.
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