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