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What's the typical process when buying a short sale?

Asked by Trulia, San Francisco, CA Mon Mar 5, 2012

How long does it take? What are some pitfalls?

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Taken from my blog entitled Why Does It Take So Long to Buy a Short Sale:

Q. I want to put in an offer on a short sale but the listing agent said it could take 6 months just to get a response from the bank as to whether my offer is accepted or not! Why so long?!

A. A short sale involves selling your home for less than the balance owed on the mortgage. In doing so, the Seller must ask their lender to accept the lesser amount to satify the mortgage. The process is very complex and involves many steps before the offer is accepted, rejected, or counter offered.

The distressed seller would find a licensed REALTOR® (with significant short sale experience) to list the home for sale, market it and find a buyer. While that is happening, the Realtor or a member of their negotiations team would begin the process of notifying the mortgage lender that the Seller is having difficulty paying their mortgage and is attempting a short sale, thus attempting to avoid foreclosure. If the Seller does not truly have a hardship (job loss, divorce, medical bills, etc.) and has means to pay the mortgage, the bank is unlikely to agree to the short sale.

The next thing that must happen in the sale is similar to any home sale. A buyer must be found who is interested in purchasing the property under certain conditions. Once the buyer submits an offer on the property, and the seller accepts it, a short sale package is put together for the bank. The package normally includes a copy of the Seller’s listing agreement, a copy of the signed offer, a hardship letter from the Seller, copies of the Seller’s last 2 years of tax records, 2 months of pay stubs and bank statements, and a financial worksheet.

Here’s where the slowdown starts. Once a Seller’s short sale package is sent off to the bank, we wait. What are we waiting for exactly? We are waiting for our file to be assigned to a negotiator at the bank, and a BPO to be ordered. A BPO (Broker Price Opinion) is completed by an independant Realtor of the bank’s choosing to do a market analysis and tell the bank if the offer submitted is worthy of approval. Its like an informal appraisal. Usually the bank allows the BPO agent a week or two to complete their analysis (more time that we wait!) Why do they do this? Because the bank is not here in Tampa, Florida, most likely, and they don’t know if the offer submitted is fair, and a better value to them, or if they’d be better off foreclosing and recouping their lost money when the property is sold as an REO (Real Estate Owned) foreclosure listing. Therefore it is unwise to make unrealistically low offers on short sales because a BPO will show what similar homes are selling for, and if the offer is too low, the bank will just reject it.

Banks are facing record foreclosures and short sales and are understaffed. In recent months, we have seen a slight increase in the speed at which we get responses, but it requires constant follow up with the banks. To meet the high demand, some banks have broken down the tasks involved in a short sale into various different departments – from customer service reps to loss mitigators, asset managers, collection departments and foreclosure departments. Sometimes, in our experience, the right doesn’t know what the left is doing so to speak. Escalating a file can take days, weeks, months before a human’s eyes can confirm receipt of the file and begin discussing your situation before the file gets transferred to the next department. In rare cases, we’ve seen banks lose the file – causing the process to breakdown and start all over again. Once the bank has assigned a negotiator, the BPO has been completed, and they’ve approved the sale price, if the loan was secured by FHA, often the mortgage insurance company must also approve the sale – yet another department for the file to pass through before its given a final OK. Each step in the process the banks normally allow a week to 14 days to go through, so if the file must past through 5 different departments, figure 14 days at least for each department (if there are no hiccups along the way!)

A question we are frequently asked as agents is “Well if the bank takes too long, can’t I just buy something else and walk away from the short sale?” The answer is, it depends. You have to read your contract. Some short sale contracts may state that you have to wait at least 45 for the bank to respond. If you are within that 45 day period (depending on your contract – it could be longer), no, you cannot just walk away. However if that time period has passed, depending on how your contract is written, you may withdraw from the contract. Consult a Realtor when writing a contract (or withdrawing one!) on any short sale to make sure you know what your deadlines are....

Continued here: http://www.lianejamason.com/featured/ask-a-realtor-why-does-…
3 votes Thank Flag Link Mon Mar 5, 2012
The process begins when you put in a contract. Next, the buyer will either accept or decline. If he accepts, then the contract is submitted to the bank. On your end, you will need proof of funds to be submitted with your offer. Which bank holds the note will dictate how long and how difficult the process is going to be. It could take 30 to 120 days and there are no guarantees that it will work out. That is the biggest pitfall, the time it takes and the uncertainty of the deal getting done.

The good thing is that you may get a great deal on a house.
2 votes Thank Flag Link Mon Mar 5, 2012
Make sure your agent lists, sells, and closes short sales first of all. Here is a step by step short sale process for buyers in Florida.

http://www.shortsalesinflorida.net/short-sale-process-for-buyers
1 vote Thank Flag Link Mon Mar 5, 2012
Short Sales are Anything but Short! And you Better know what YOU are getting into...

Even as the Buyer, you must still understand the Sellers position. For all intents and purposes, short sales, foreclosures & pre-foreclosures are all the same. The owner needs to sell & they owe more than the house is worth. Therefore they need the lender(s) approval to sell "short".
Lenders don't do this out of the goodness of their hearts (even though some lenders are the reason the seller is in this fix...but that's another story.) Lenders are looking to cut their losses. Which way will they lose less- Short Sale/Foreclosure?

Sellers can't just do a Short Sale because their property value dropped and they want out. They have to qualify. There must be a real hardship-such as a loss of job, death of partner, major illness..AND they don't have other assets or financial options. If they meet these qualifications they also have to complete a full financial package for the lender proving it. Here's the biggie...the Seller should be working with an attorney to "NEGOTIATE" the deficiency if in a lien state. "THE WHAT"?
The deficiency...the balance that will be due on the NOTE. Let me make this very clear DEBT DOES NOT DISAPPEAR!
Florida is a recourse state. When a lender releases a Mortgage it merely means they are releasing the vechicle that secures the NOTE to the house. With the mortage released they can sell the house....but the note is still there...it just doesn't have the house for collateral.
Only a licensed Mortgage broker or an attorney can legally negotiate the debt. In the Release the lenders are often vague or evasive about the note...the attorney's task is to negotiate the debt down as low as possible...Real estate agents cannot legally do this...though many claim to ...some even claim to be experts...which I find entertaining ...being a pro at something you can't legally do...hmmmm.

Part of the problem is every lender has different requirements. If there is only one lender & the seller qualifies the chances of closing are good. Two lenders or a lender and an HOA and the chances go down...3 or more liens...Buyers you should RUN! Listing agents should know this and list accordingly. Many don't and I will go as far as to say some list knowing it will never close...they are looking to use the listing to attract Buyers...the old bait and switch!

What does it mean if you are the Buyer? Sit down and have a consultation with your Professional Realtor. If they don't do this...maybe you should find one that does.
Make sure your agent checks out the Short Sale before you even go looking...Have the agent ask if the Seller qualifies, if they filled out their financial package, how many liens are on the property ...who is negotiating....(remember 3 or more liens...what do you do...RUN!)
If you have time contraints- you must be in a home by a certain date...Don't do a Short Sale!
Once you and the Seller agree on terms and have a ratified contract it will take the first lender 45+ days to respond. Most lenders want agents to put 90-120 days in the contract & initial escrow. If a Short Sale closes in 2-3 months that is excellent. It could be 6 months plus AND even with a FULL PRICE offer the lender may come back and counter with higher OR just say NO! There are no guarantees. The Lender may get more if they foreclose and collect mortgage insurance & then sell it themselves.
As far as pricing...it is based on market value. Lenders were looking to get 88-93% of market value...now we are seeing many want 93%+ even closer to market value. Low ball offers are a waste of time. Once the first lender agrees, the process begins again with the second lender..who usually doesn't get more than $3k compensation regardless of the loan amount, which is why the 2nd lenders are often the deal killers.
Now it is not that the Lenders are totally big bad guys. The seller is delinquent on their debt. Sometimes the seller is the Killer. They may have been living in the house for a year or more paying nothing & maintaining nothing (so be prepared to pay for repairs). The lien holders agree, but won't negotiate the debt down to zero, so the Seller backs out of the deal. The Buyer might not find this out till 6 months down the road. Short Sales are like raffles. You MIGHT be a winner.
Everbody wants a deal...what do you do as a Buyer? Don't limit your options. In this BUYERS MARKET, the market value IS an "On Sale" price, whether a Short Sale, REO or regular priced house with a motivated seller.

Pam Cohn
Broker Associate, GRI, SFR, NHS
Real Estate Consulting, Marketing & Sales
Prudential Tropical Realty
http://www.FromCavesToCastles.com
pcohn@prutropical.com
727-204-7155
0 votes Thank Flag Link Sat Mar 31, 2012
Step 1: be patient
Step 2: hire a professional (experieinced with short sales)
Step 3: be patient
Step 4: have your agent do all due diligence in terms of status of the property--not all short sales are eligible and if the listing agent is not competent the sale will never happen!
Step 5: be patient
Step 6: discuss your time and budgetary limits before placing your offer--remember, your agent is on your side--they can tell you whether or not the property is priced correctly to begin with--banks are not interested in anything byt the bottom line and will not let a property go for much less than market. Considering distressed properties now set the market, well--that's another discussion. If you do not feel comfortable discussing these things with your agent, go straight to #15! Trust is mandatory.
Step 7: continue to practice patience--if you have a time limit on your purchase, best NOT to try for a short sale--some may happen, most do not within a reasonable time period, so go to #15!
Step 8: once your offer has been agreed to by the seller (just a formality, generally, but sometimes sellers are still attached to their properties, and this can be a hitch); the offer goes to the lender for approval.
Step 9: now is when to start practicing all that patience you've been working on!
Step 10: Wait.
Step 11: you guessed it: patience!
Step 12: Wait some more--if your agent is smart, they will have established a good rapport with the listing agent, and is communicating on a weekly or bi-weekly basis. If this is not the case, you may want to skip straight to Step #15
Step 13: patience: I find breathing exercises very useful.
Step 14: if 30 days have passed and the listing agent cannot provide vany valid responses from the bank, that an appraisal has been done, perhaps a counter offer--go to Step #15
Step 15: RUN!

Pretty much everything else is standard to any real estate transaction--the only difference with a short sale is that the lender is in charge, if you are able to give up control of such a large transaction 100% to the seller, which is not a person, but a huge corporate entity, by all means--shop for short sales! I do not recommend them to my clients, however...(see above), when there are many other choices available in my market!
0 votes Thank Flag Link Tue Mar 6, 2012
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