The short sale process to selling your home is a complete mystery to many home sellers, buyers, and even real estate agents. To help you better understand this complex and time consuming transaction, here are the steps in the short sale process:
- Contact your lender. Ask for the Loss Mitigation Department. Start by calling your lender's customer service phone number, which you can find on your monthly mortgage statement. Have your mortgage loan number ready.
- Request the lender's authorization form that enables your real estate agent to speak to the lender on your behalf. Send the authorization form to the lender as soon as you hire your agent. It takes up to 5 days for the authorization to be recognized by your lender, so don't delay.
- Request the short sale package from your lender. In most cases you will be asked to present the following:
- Hardship letter- a one page letter as to why are you requesting the short sale
- Financial worksheet, which is specific to each lender but will include a detailed listing of your assets, your income, and your expenses.
- 2 months pay stubs
- 2 years tax return
- Copies of checking, savings, and investment account statements.
- Interview several real estate agents experienced in short sales and select one to list your home.
- Review Comparative Market Analysis of houses for sale and recently sold in your area.
- Discuss and agree on the listing price for your home with your agent.
- Sign the traditional listing agreement with the short sale addendum, plus the seller disclosure package provided by your agent.
- Your agent should market your house listing just as you would a traditional sale
- Review offers to purchase your home as they are presented. Choose the one that is most likely to appeal to the bank. Banks prefer a combination of price and strength of the offer, e.g. loan terms. If there are multiple offers, it is a good idea to place one or two offers in backup position. Buyers often become disillusioned at the length of time it takes for the short sale to be completed, so a backup offer is a good idea in case the first buyer backs out.
- Your agent will send the seller a completed short sale package ( be sure to sign and date) with the accepted (signed by buyer and seller) offer to the lender. It is important to give your social security number and the property loan information to your agent. Each time he calls, the lender will need that information to verify your agent’s authorization.
- Your agent should check in with the Loss Mitigation Department on a weekly basis to track progress of the short sale. The short sale process goes through a series of departments before the short sale is granted. Both you and your agent must be persistent, but also patient. The process is:
- Authorization letter for agent to represent the seller to the lender
- Completed Short Sale Package along with the offer to purchase to the lender
- Agent checks to see if sent information is uploaded into system
- The Loss Mitigation Department reviews the documentation for short sale worthiness
- Lender assigns a negotiator
- Negotiator orders BPO (Broker Price Opinion) similar to a CMA (Comparative Market Analysis) completed by your listing agent. Negotiator establishes a range of acceptable sales price. If the offer falls in the range, then an appraiser is sent out to the property.
- Negotiator often asks for a seller’s financial update at this point. Negotiator recommends acceptance of offer or counters offer. When buyer and negotiator are in agreement, the short sale is sent for review by board of investors.
- Short sale is accepted in writing. A short sale terms sheet is then sent to the listing agent to review with the seller. At this point, it is a good idea for seller to have legal and tax advice before finalizing the short sale. If there are two or more lenders, this same process takes place concurrently. The first lender will usually offer a nominal amount to the second lien holder. It is sometimes necessary for the buyer to pay additional funds to the second lien holder so they will release the lien. The second lien holder usually wants 10% of the amount owed to them to release the lien.
All lenders must agree to the same terms. This agreement must be reflected in the acceptance letters. The title company cannot close if there are conflicting short sale agreement letters. Additionally, all terms must be reflected on the title company HUD. No money may transfer outside of escrow. Seller may not get any proceeds from the sale of the property. The seller will be asked by his lender(s) to sign an “Arms length” disclosure, stating that the seller has no affiliation with the buyer, his agent or the listing agent, in any way.
- After short sale acceptance by the lender(s), the buyers deposit must be placed in escrow. His loan, appraisal, and inspection contingency time frame begins. These time frames conform to the time frames in the contract, unless the lender’s term sheet changes the number of days allowed to remove the contingencies.
- After the buyer removes his contingencies, the buyer’s lender sends the documents to the title company for the buyer and seller signatures.
- The buyer does his walk through, his loan funds, the sale records, and then the buyer receives his keys. The seller may not under any circumstances remain in the property, even if the buyer will allow it.
- The seller is advised that as soon as the buyer removes his contingencies, he confirms alternate living arrangements.
- The seller is now free to work at clearing any other debts and begin to look forward to a healthy financial future.
- The buyer, through patience and perseverance, has been able to purchase a property at below market level price. Please note that short sale properties are often listed at below market level pricing. The lenders are taking, for the most part, a large hit on the amount owed. If the offer is too far below market value, the lender will choose to foreclose, rather than grant the short sale.
Advice to sellers and buyers: Offers need to be in a reasonable price range. So review the comparable sales carefully.