After closing over 30 short sales in the past few years, I recently had an experience that motivated be to write this blog.  You see, as a Realtor who deals with short sales every day here in Sarasota County, much of the day-to-day issues that we encounter have become routine.  However, as a client who is dealing with a short sale for the first time, these issues and the bureaucracy that is involved can be extremely frustrating!

So, in the interest of all of you folks out there that are in the middle of the long wait for approval, both as buyers and sellers.  I am going to attempt to explain in layman’s terms, the processes of a short sale as I have experienced over these past years.  I don’t promise this will make your personal experience any more enjoyable, but perhaps a little less stressful.  Here we go!

First, for those of you who are not familiar with what a short sale is I will try to explain in the simplest terms.  Basically, the owner of a property owes more to the bank than its current market value.  In order to be able to sell the property, the owner must ask the bank to accept less than what is owed on the property as payment and release their lien against the home.  If there is a second mortgage or equity line, the seller will have to contact all lien holders to accept less than owed.   Most short sales are initiated these days on line through a web site call Equator.com.

First Steps In A Short Sale

Once the seller has decided they need to do a short sale, the seller should contact a professional Realtor who has extensive experience closing short sales.  The Realtor should have also invested in the education and professional certifications  such as SFR, ( Short Sales & Foreclosure Resource) and CDPE, (Certified Distressed Property Expert).  FYI, I have completed both courses.

After the seller chooses a Realtor to handle the short sale, they will fill out a third-party authorization form.  This form will give the Realtor the authorization to open a file on the equator web site and communicate with the bank(s) with regard to your loan.  Click here for an example.

Your Realtor will then collect from you the following financial information that will be submitted to the bank for review via equator:

•  Two months most recent mortgage statements (all mortgages)
•  Two months checking account statements (all borrowers if separate)
•  Two months savings account statements (all borrowers if separate)
•  Two months other account statements (all borrowers if separate)
•  Last two paycheck stubs (all borrowers)
•  Two years tax returns
• IRS Form 4506 Request for Copy of Tax Return
• Hardship Letter
• Financial worksheet

Once everything is received, the mortgage servicer will review and see if the seller qualifies for any of several federal assistance programs that may be available.  In the meantime, the Realtor is marketing the property in order to receive an offer.  Please be sure that you work with your Realtor to price the property realistically.

All of the above should have been accomplished prior to an offer in order to shorten the wait time for the buyer.  One of the biggest problem in trying to execute a short sale is the losing the buyers due to the lengthy waiting period.  Some additional issues to look out for would be a second mortgage, home equity line, mechanics lien, IRS lien or an outstanding judgement.  it is important to be sure the title has been researched thoroughly prior to initiating the short sale.

Once The Short Sale Offer Is Submitted

After the Realtor has uploaded the offer onto equator, he will also need to upload a preliminary HUD-1.  The short sale file then enters the valuation period.

Valuation Period

At this point the negotiator assigned to the file will order a BPO, ( Broker Price Opinion) and an appraisal.  This usually take at least one week to  be completed and uploaded to equator.  These values  will be the basis used  by the negotiator to either accept or counter the offer.

Offer Review Period

Once the values are received, the negotiator will review the offer as it compares to the valuations received.  They will use guidelines established by the bank servicing the loan to determine whether or not to accept the offer.  

Once the offer is accepted, the negotiator still has to present the offer to “the investor”, (usually Freddie Mac or Fannie Mae) for final approval.  This is where the confusion and frustration can some times begin.

 One would assume that when the bank’s representative accepts the offer, you are ready to close.  However, when the offer is presented to “the investor”, they review they offer using their own guidelines and there are times when the negotiator comes back to the buyer with yet another counter-offer.

The important thing here is to be prepared for these scenarios to pop-up when entering into an agreement on a short sale property.  There is no guaranteed that the process will go smoothly and new situations not addressed here will surely  come up.

Closing The Short Sale

Once you finally receive the written approval letter from the bank, the time periods for inspections, financing, escrow and any other addendum that are part of the executed contract usually begin.  From this point forward the closing process goes along just as a regular sale would.  However, be sure to keep communications open between all parties.

The approval letter usually has a deadline that must be met.  If either party feels they may not be able to meet the deadline, be sure to notify the bank granting the short sale ASAP.  They usually will grant an extension to the closing deadline.

The bottom line is, be patient and prepared.  Knowledge is power and being familiar with the process can make it less stressful!