Short Sale Process
The short sale process is a complex process that can take months to complete and can be confusing to home buyers and sellers. In order to have a successful short sale, the seller needs to meet certain criteria in order to obtain approval from the bank. The bank(s) require information regarding the home seller’s finances, specific short sale documents, information regarding the home’s value, and an offer from a prospective buyer.
What Is A Short Sale?
When a lender approves a short sale, they are agreeing to accept less than the amount that is owed on the mortgage, in order to allow the homeowner to sell the property. In order to approve a short sale, there needs to be a documented “hardship”, or reason that the homeowner can no longer afford to keep the home. (You can read our full article explaining what a short sale is here.)
The process that we outline below explains the steps that go into a successful short sale. By understanding the process, it will help you to manage your expectations and improve the chances of success.
The Short Sale Process
1. Interview and Hire An Agent:
The first step in the short sale process is to hire an experienced short sale agent to represent you in selling your property and negotiating with your mortgage lender.
In our first appointment, we will review your current situation, the options available to you, and help you determine the best solution. We will also answer all of your questions, explain the process, and collect all of the required documentation if you choose to move forward.
2. Contact your lender(s):
Included in the paperwork that we will go through with you is the “Authorization” form. This will allow our team to speak directly with your lender(s) for the purpose of completing the short sale. We will notify your lender that we will be working together with you in the short sale of your property. In most cases, the lender will not review the short sale until we have an offer on your property.
3. List your property on the market:
The next step in the short sale of your home will be putting your property onto the market. The lender requires that we have an offer on your property before they will review the short sale package. Our team will price your property based on the comparable properties in your complex/neighborhood and will handle the entire listing process. This will include making any recommendations to get your property ready for showings, advertising, and marketing your property for sale, and communicating with prospective buyers and their real estate agents.
4. Receive and accept an offer:
Once a buyer presents an offer on the property, we will begin by verifying their financing and downpayment. Once all items have been confirmed, we will review the offer with you and make any recommendations to either counter, decline, or accept the offer. The contract will be written contingent on the lien holders approval.
5. Submit the short sale package to your lender(s):
Once an offer is accepted, we will prepare and submit the short sale package to your lender(s). The short sale package generally includes the following items:
- A letter of authorization for your agent to speak with the bank.
- An estimated net sheet.
- A completed financial statement or request for mortgage assistance (RMA).
- A hardship letter from the seller.
- Tax returns for the previous two years.
- W-2s for the previous two years.
- Pay stubs for the last 30 days.
- Two months of bank statements.
- A comparative market analysis or list of recent comparable sales in the area.
6. Lender review:
Once the short sale package has been submitted to your lender(s), it will be assigned to a negotiator and the review and response period lasts approximately 1 to 3 months. The lender will order and appraisal or broker price option (BPO) to determine the market value of the home being sold. They will review all documents and compare the value of the home against the offer that was received on the property. If the net proceeds meet their required amount, the short sale approval will be issued.
7. Receive and approve the short sale approval from the lender(s):
When your lender approves your short sale request, you will carefully review the terms and conditions of that approval. If you agree to all terms that the lender has presented, escrow will be opened. The lenders typically give us 30 days to close escrow. As a condition of the approval, the bank may require that all parties sign an “arm’s-length” affidavit, which is a document signed by the buyer and seller stating that neither party knows the other, nor is there any type of pre-existing relationship between the two.
8. Escrow period:
The escrow period is a standard 30-day escrow. During this time, the buyers will complete their inspections on the property, the buyer’s lender will order an appraisal, and we will sit down with you to go through all of the disclosures on the property and escrow instructions. Everything during this process happens the same as if it were a normal sale.
9. Close of escrow:
On the specified close of escrow, the buyer’s lender will fund their loan, escrow will record the grant deed, and the transaction will be completed. The close of escrow date will be the last possible day that you can be in the property. (Many seller decide to move out prior to the closing day.)
Some Final Tips
The short sale process is a detailed process that requires someone with a lot of experience and very diligent follow-up. Most agents don’t have the experience or the time to properly navigate the negotiations and obtain an approval.
Our team specializes in short sales throughout California and can help you get your sale approved. Contact us today to learn more about your options and how we may be able to assist you.