The Short Sale Process
The short sale process is fairly simple to understand if you have any experience with real estate. Let's go through the different steps in a short sale so you know exactly what you are getting yourself into.
The short sale process starts when a homeowner is delinquent at least 90 days and has been issued a notice of default. The lender is now in a position to accept less than what is owed on the mortgage. The investor or real estate agent handling the short sale will need to sign an authorization to release form that will be sent to the lender giving them permission to speak to the lender on the homeowners behalf.
Once the authorization is faxed to the lender, the investor or real estate agent will request a short sale packet or workout packet. They will also get the direct number of the person who is handling the account which will save them lots of time and headache in the weeks to come. Next in the short sale process is checking title. If you have a relationship with the title company, you can run a preliminary report at no cost. This allows you to see what liens are on title.
Short sale requirements
Once you have short sale packet from the lender, you'll need to make sure it's filled out completely. Any incomplete packets will delay the process and get rejected. The following short sale requirements are typically what a lender wants to see:
- a purchase and sale agreement
- a hardship letter
- bank statements
- tax returns
- a financial statement
- HUD-1 settlement
- and possibly a listing agreement
Next in the short sale process is finding the buyer. If you're an investor, finding a cash buyer is the best but there are times you don't find one. If you don't have the money to bring to closing, you have to use private money or transactional funding to perform the transaction between you and the bank so you can sell it to your end buyer. If you are an agent, you just need to find a homeowner who can qualify for the loan and a typically short sale will pay 3% - 5% commission.
Short sale BPO
The BPO comes next. This is a brokers price opinion where an appraiser appointed by the bank will come out to the property to give the bank his/her opinion on what the home is worth. Usually you'll want to meet the appraiser at the home so you can walk through all the problems and point out all the flaws or repairs needed. The goal is a low BPO. Then you play the waiting / follow up game. You'll want to pay close attention to the auction date and really be proactive in knowing the status of the short sale being accepted.
Once the short sale is accepted, you'll receive a payoff letter and schedule your closing. Make sure you've either got funding in place if you're an investor or your end buyer if you're an agent. That's about all there is to it to the short sale process. You can expect anywhere from 4-6 months and sometimes longer to complete a short sale because of the because of the number of short sales banks are dealing with right now. However, we've been told recently that banks have 2 months now to respond to short sale offers. We'll see how that goes.