Do you normally sign a contract on a short sale before or after the bank approves it? Does it speed up the short sale process to closing? What is?

Asked by Home Buyer, Queens, NY Tue Nov 3, 2009

the timeline of a short sale?

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19
Kathleen A. Scanlon’s answer
Kathleen A.…, , Rockville Centre, NY
Mon Jan 18, 2010
Purchasing a distressed property whether a short sale or an REO (bank owned property) presents its own set of difficulties but can also provide the reward of purchasing a home substantially under market value.

Most Lenders will not consider a short sale without a full package submittal, which typically includes the seller's financial documents, a fully executed contract of sale, proof of funds or a mortgage pre-approval, a preliminary HUD-1 Settlement Statement, among other documents.

As a seller's attorney, my firm normally includes contractual language that makes the contract contingent upon the short sale approval. Further, if there are violations and open liens, I want the short sale bank to approve their payment as well. There are times that the lender will deny payment and I try to avoid having the Seller on the hook for such a payment. The reason they are short selling their home is because they lack assets. I also make the contract "as-is" and vacant at closing because, of course, there is often no money to be put in escrow for repairs or post-closing possession.

As a purchaser's attorney, I want my client to put as little as possible down on contract. That down payment can be tied up for months waiting for short sale approval. I also want a time frame where, if there is no approval, my client can cancel and get her money back - the problem being - you don't know how experienced the person negotiating the short sale really is. I have seen some egregious mistakes on preliminary HUD-1 settlement statements that grossly understate what the true cost to Seller (and ultimately the bank) is going to be to close and give clear title.

As you can see, it is essential to choose representation that is experienced in distressed asset transfers. Short sales are not for neophytes whether realtors or attorneys.

Good luck!

Kathleen A. Scanlon
kscanlon@scanlonandpinto.com
2 votes
Donald Mituz…, Agent, Chappaqua, NY
Sat Jan 23, 2010
Kathleen Scanlon has really hit the nail on the head. I've closed short sales in the past and have one closing next week and I've seen how difficult they can be if the right person is not handling it. It's a shame Kathleen isn't an attorney in Northern Westchester or Putnam County. I would love to be able to refer buyers to her.

Don Mituzas
Licensed Associate Broker
2008 Realtor of the Year
Prudential Serls Prime Properties
http://www.nyhomeseller.com
1 vote
C Tann-Starr, , 11354
Thu Nov 26, 2009
Good morning. Short Sales occur when "net proceeds" from the sale are not enough to cover the sellers’ mortgage obligations and additional costs, like transfer taxes, because the seller is (a) unwilling to or (b) unable to cover the difference between projected escrow funds to be received and the actual balance owed.

Because each set of buyers and sellers are unique (think credit reports, specific property to be purchased and balances owed) the lender's loss mitigation units that the Realtors and Lawyers have to deal with are going to take their time to consider and review each "completed package" set before them. Underwriting is complicated and getting a bank to agree to take a loss on a property requires quite a bit of negotiating, so there is no standard or set time-frame in regards to hammering out an acceptance.

Concerning contracts, the NYS statutes covering fraud require real estate transactions to be in writing. A binder is your written offer to a seller setting out an outline of the basic points regarding your willing to purchase a property (e.g. the price, down payment, subject to inspection, appraisal, mortgage, tenancy on location, exclusions, personal property purchase of sellers furniture, etc) and an executed contract means the seller has accepted your offer to purchase.

At the point you have an executed contract regarding a potential short sale, the entire package goes to the bank for their third party approval. Without the banks approval of the short sale you have nothing. The bank's loss mitigation unit is going to engage in underwriting procedures where the credit reports, bank statements, mortgage commitment and a host of other financial points of order are going to be considered and reviewed. The process is complicated and time consuming but can be done if you are patient and willing to see the project through.

If you need a Realtor in Queens County to help you purchase a home, please feel free to contact me: CTannStarr@yahoo.com
Web Reference:  http://www.TannStarr.com
1 vote
Anna M Brocco, Agent, Williston Park, NY
Wed Nov 18, 2009
The contract is signed before the bank approves; however, you should consult with a Real Estate attorney so that you can make an informed decision with any short sale purchase.
1 vote
Weichert Rea…, Agent, Watchung, NJ
Tue Jan 26, 2010
If foreclosure cost less the a short sale the lender will foreclose. Regards,
0 votes
Sylvia Barry,…, Agent, Marin, CA
Mon Jan 25, 2010
The lender will only negotiate (consider) the short sale when the complete packet (both the seller informaton and a purchase contract) are received. So, yes, you will need to have a short sale contract. A complete short sale does not speed up the process but an incomplete one delays the process by having lender coming back, ask and wait for the information.

You do need to get experienced short sale agents to help you with your short sale since it is quite complicated and takes a long time - it's not for faint hearted or ignorant agents and/or clients. Both sellers and buyers need to be educated about the process for the short sale to be successful.

However, good news is short sales do close and I can prove that by the fact that I have closed 100% of my short sales - buying or selling.

Best,
Sylvia Barry
Short Sale Specialist, Marin, Sonoma, S.F. Northbay
Frank Howard Allen Realtors
(415) 717-0293
0 votes
Marla McWill…, Agent, Coeur d Alene, ID
Mon Jan 25, 2010
Short Sale ---- What an oxymoron! :-) Should be called a LONG sale...

Not sure of the actual percentage, but I am pretty sure that under 50% of all short sales throughout the US do not even close.

YES!! You will need a signed contract with a buyer for your Agent to submit to your bank. Remember, the bank has NO obligation to take less than is owed on the house.....and also, the "short sale" departments are overwhelmed with properties.

Most of the short sale facilitators are working on about 150 files each.... (at the banks). This is straight from a friend of mine that works at a National Bank's short sale department.

With all that negative said, find a great local SHORT SALE Realtor expert to help you......and he/she will surely do their best to get your house sold as quickly as possible (under the circumstances).....
0 votes
Dallas Texas, Agent, Dallas, TN
Mon Jan 25, 2010
Short Sales can take approx. 45 - 60 days to close.

Bank needs a signed sales offer push forward

Your buyers agent should be able assist with all steps for you close

National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
Follow me on Twitter: http://twitter.com/Lynn911
Lynn911

http://www.lynn911.com
0 votes
Weichert Rea…, Agent, Watchung, NJ
Wed Jan 13, 2010
I think Anna has it, "The contract is signed before the bank approves; however, you should consult with a Real Estate attorney so that you can make an informed decision with any short sale purchase." Good Luck.
0 votes
Deborah Conti, , Malta, NY
Wed Jan 13, 2010
I have done a lot of short sales in this market. My clients call their bank to see "If a short sale is acceptable" before they even go that route. Few banks won't accept a short sale, but there are banks that won't! If you are afraid of giving your name and all, just ask for the mortgage Dept. and just ask if the company accepts short sales. You don't want to go the process of getting it listed, then sold, then to find the bank won't approve it or even consider a short sale. I had one recently that did just that! The property had two mortgages and one bank stated they would not even consider a short sale, so the deal fell. After the seller and buyer were excited about the sale, only to find there wasn't one! So, my advise is to call the bank FIRST! Then, list the property and when you get your contract, yes, then you let the bank know. I tell my clients to "Let your attorney" handle the process from the begining. Since, there are various forms and paperwork that is needed. And, with a 3rd party involved, it is "Always" a good idea to get an attorney involved. Good luck!
0 votes
Christine Mi…, Agent, North Potomac, MD
Tue Jan 12, 2010
You need to sign a contract before the bank approves it or the bank will not even consider it an offer. The buyer and seller must both sign it and the bank will have final approval. When the bank gets the contract the time starts. The time could be starting from 3 months or more unless the process has been started by another buyer who backed out. If the price you offered is a different price from the first contract the process starts all over from the beginning. It all depends on the banks and how many loans they have on the property
0 votes
Joseph Washi…, Agent, Berwyn, IL
Tue Jan 5, 2010
C Tann-Starr has one of those answers that is nearly perfect. Kudos to your answer. I wish to add that short sales are difficult in many respects due to variables and circumstances that arise that are often not discussed. A seller lists his home (reluctantly) with a real estate broker/agent because the seller is told this could help to mitigate or lessen the damage to their credit- selling as a short sale vs. losing it to foreclosure. Still, they list their home and then you find they are not responsive or available and access is difficult for showings. OK- sometimes you get a sales contract signed and the seller then becomes less cooperative. The seller does not submit the financial paperwork sought by the lender in charge of making the decision on the short sale approval. The seller wants to reside in the property for as long as possible to enjoy free rent. The delays are not always the lender working on making the decision. Often, it is the speed (or lack thereof) that the seller complies with their processing requests that make short sales tricky sometimes. The best agents help to navigate the buyer AND the seller through all of the quagmire and encourage all parties to comply, responsibly.
0 votes
Phyllis Cros…, , Tampa, FL
Fri Nov 27, 2009
The short answer is yes, however the sale is contingent upon lenders' approval, and just because the seller signs an acceptable doesn't mean the lender is going to accept it. There are more variables than just the lender approving the sales price. For instance, the seller has to also be approved for a short sale, and must have documentation to warrant a short sale. An example would be loss of job or medical condition. Documentation would include letter from former employer bank statements, medical records -- depending on the reason.

Once the seller has signed the contract, the lender will also send an appraiser or a Realtor for opinion of value. They may wait and stall for more offers. There are other variables as well.

In my ReMax office we had a Realtor that walked into the office beaming. She said she just closed a short sale after waiting for 14 months. I have closed them in 30 days, but I drove the listing agent a bit wacky... to call the lender everyday...trying to get the file moving at the lenders offices. I am sure it helped tons.
0 votes
chris anders…, Agent, Mount Pleasant, SC
Fri Nov 27, 2009
EVery short sale (long sale as they are being nicknamed) are always challenging. Each lender can be different and each negotiator can be different as well.

To answer your questions, our short sale experience has shown us that the buyer needs to submit the offer as any other deal. Howeverm the seller needs to sign off on the deal as well before getting it sent to the lender. The main reason for this is the seller needs to accept the buyers offer as it can impact the amount of money if any the bank tries to recover from the Seller. Sometimes they will add a lien on other properties, add a new note at a certain percentage for the balance of the loan.
As every lender seems to be different, I would reccomend that you speak to your short sale contact and ask for an email or copy of their procedure and protocals. I would reccoment something in writing, instead of friendly advice. This way when you talk to someone else and they ask you to do it a differnet way you have a reference point.

Keeps notes on everything and each contact at the bank. We keep detailed journals of every converstaion and interaction with a short sale.

Hope this helps. Anything else I may be able to help with just let me know. chrisanderson@kw.com

I really enjoy this part of truilia, it's a great way to learn and help out each other.

you take care,

chris Anderson
Mt. Pleasant, SC
0 votes
Voices Member, , Huntington, NY
Fri Nov 27, 2009
Hi HomeBuyer,
Good questions! Every short sale can have its own personality, with the important characters being the owner/seller and the bank/banks. Even with these variables though, there are some "MUSTS":
- The seller MUST be committed to the entire process - and it can be long, tedious, and frustrating.
- The buyer MUST must be committed to being very patient; there is no definitive time frame for when the deal will close. Three months is on the short side; some deals have gone into 9 months or more. And sometimes, the bank/investors don't agree to the sale at all. What a nightmare, right?
- Banks will consider offers to purchase only when:
They have a CONTRACT with proof of ability to purchase, and
They have a "short sale" package completed by the owner/seller that shows hardship/inability to pay and lots of paperwork to support that hardship.
When I work with buyer clients who want to purchase a short sale, I ask the listing agent all sorts of questions about the seller and the bank. If buyers want to move on it, I caution them that it can take a looooong time, and that their contract money can be tied up for some time while waiting for bank's response. And if bank approves the sale, then we all have to more fast to close . Good luck! Maureen Moran, Licensed Associate Broker, SFR (Short Sale and Foreclosure Resource Specialist)
0 votes
John Fiorelli…, , Richmond, VA
Thu Nov 26, 2009
Both Buyer and Seller aggree to terms by signing the prchase offer before sending it off to the bank for review. If either party hasen't signed the offer than there is no purchase offer to review. The The 3rd party approval is a contingency in many ways similar to a Right of First Refusal. The contingency needs to be removed for the purchase to proceed to closing. My Association of Realtors has determined that the listing remain active until bank approval in the same capacity of a Right of First Refusal with disclosure made to agents who request a viewing. Hope this helps!

John Fiorelli, REALTOR
Recruiting Director
Marketing Consultant
Century 21 Signature Realty
2800 Buford Rd. Ste 204
Richmond, VA 23235
Direct: 804-908-2046
Office: 804-330-4222
Fax: 804-330-4249
Email: john.fiorelli@century21.com
Web: http://www.fiorealtor.com
0 votes
Brendan Cunn…, , Orchard Park, NY
Thu Nov 26, 2009
Excellent job by C Tann-Starr who gives the definative answer on what has become one of the more misunderstood kinds of transactions in Real Estate. It is responses like this that really make Trulia one of the more valuable resources for both consumers and professionals. Kudos!!
0 votes
Attorney Chr…, Other Pro, New York, NY
Wed Nov 11, 2009
In my experience, the seller's lender will not only require a contract but often times a commitment from your lender. That is why it is important for your attorney to monitor both sides of the transaction, to avoid the pitfalls that are unique to short sales. This can take several months, depending on the lender that holds the current mortgage. The flip side is that everything on your end needs to be completed because you will usually be required to close within a short period of time or the lender's approval is withdrawn. Good Luck!

Christopher G. Allocco, Esq.
771A Yonkers Avenue
Yonkers, NY 10704
914-771-8318
cgapclaw@cs.com
0 votes
Mehmet Realt…, Agent, Queens, NY
Sun Nov 8, 2009
It does not important.
Short sale is SUBJECT TO the bank approved!
The Bank makes rules. It takes a lot of time!
It is very difficult to speed up the bank process.
GOOD LUCK!
MEHMET at(718)530-2771
Licensed Associate Broker
CBR- Certified Buyer Representative
CIPS-Certified International Property Specialist
RSSP-Certified Short Sale Professional
GRI- Graduate Realtor Institute
Web Reference:  http://www.MehmetRealtor.net
0 votes
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