Short Sales 101

SHORT SALES 101

WHAT IS A SHORT SALE? – A short sale is the sale of a house where the existing loan is MORE than the sale price, which leaves an unpaid balance to the lien holder (the seller’s mortgage company). Unless the seller can pay this balance out of pocket at the time of the sale, they will be asking the lien holder to forgive the balance of the debt. Because of this, the contract between the buyer and seller is contingent upon the lien holder’s approval. Most lien holders require the seller to have a financial hardship; either income decrease or an increase in bills beyond their control.

WHY WOULD A BANK DO THIS? The banks know that in many cases, if they do not accept a short sale then the seller will just go into foreclosure. This is ultimately more costly to the bank.

DOES A SHORT SALE DAMAGE THE SELLER’S CREDIT? Yes, but not as badly or for as long as a foreclosure would.

AN ANY AGENT HANDLE A SHORT SALE? Technically, yes. However, not all agents have the expertise or the time to do so. Short sales are very time-consuming for the agent. I’m happy to say that I DO HANDLE SHORT SALES. If you choose me to handle the sale of your home, I will diligently keep in touch with your mortgage company to ensure as smooth a process as possible. I will also keep you and the buyer’s agent in the loop at all times.

HOW LONG DOES IT TAKE? That depends entirely on the lien holder. Some mortgage companies are very good, but others are just not efficient. Once an offer has been received, it can take anywhere from 2 – 6 months for the lien holder to review the offer. If it is approved, then the sale proceeds in about 30 days from that date.

STEPS IN A SHORT SALE

Seller submits letter to lien holder giving them permission to speak to the agent pertaining to their loan.
Agent obtains instructions from the lien holder and then submits required financial documents from the seller.
Agent lists the home and gets an offer.
Agent submits offer to the lien holder.
Wait for review, wait for review, wait . . . .
Lien holder gets an appraisal or BPO on the home establishing market value.
Once lien holder has pricing info, they review that with the offer and make a decision.
Approval letter is issued to the seller’s agent and the “contract start date” is established. YOU ARE NOW IN ESCROW.
Earnest money deposited with title with 24 hours of approval letter issuance.
Buyer performs inspections and other due diligence.
Sale proceeds to closing.

INFO FOR BUYERS:

When viewing listings from your agent, you will notice there is a “status” on the listing: Active, AWC, Pending, etc.

ACTIVE – There are no offers on the home at this time, OR the seller is still reviewing all offers. On a lender owned home (foreclosure), sometimes a new listing will receive multiple offers. They will take a few days to gather all offers and then choose the best.

AWC -- "Accepted (a contract) With Contingencies." The seller has accepted an offer, however, the sale is contingent upon something else happening. If that "something else" doesn't happen, then the contract is dead. With a short sale, the seller can accept an offer, but the bank then reviews it and must approve the price. That is the contingency, bank approval. That's most of the AWC's these days. Any other offers made will be in “backup position.” If the first offer falls through for some reason, then the next offer is submitted to the bank. If there are no back up offers and you really like the home, then it is worth viewing and putting in a backup offer. Many times the buyers do not hang in long enough to finish the sale.

PENDING – Home is under contract. Unless the buyer backs out, this home is basically gone. Homes that are pending cannot be shown.

Most selling agents do not require earnest money to be deposited on a short sale until the lien holder has issued approval. However, some do. If you decide to make an offer on a short sale, your agent will let you know if there will be a deposit required. This deposit is usually non-refundable* for 90 days. If after 90 days the lien holder has not issued an approval or denial letter, then your earnest becomes refundable. *However, you always have the 10-day inspection period to do your due diligence. If the home does not pass your inspections or you cannot get financing, then your earnest is refundable.