I wrote the following informative article mainly to help potential buyers and sellers involved (or that may become involved) in a Short Sale transaction have a better understanding of the process.
I have experience helping homeowners with foreclosure or financial difficulties and am happy to answer any questions that you may have about your specific situation in a professional, confidential and non-judgemental manner.
I can usually help most people.
Once you’ve armed yourself with a little bit of knowledge and are ready to act, get me on your side for a smoother, faster, less stressful transaction.
I look forward to working for you!
Short Sale Process All rights reserved ã2008 Revised 2010
Mike Cummings, BBA
As the listing agent for a property possibly subject to short sale approval, I have developed this process explanation as a way to create further understanding between all parties involved in the transaction including the potential buyer, buyer’s agent, seller and any other third party that may need to know. Utmost cooperation from all parties is necessary to create a successful transaction.
By definition, a short sale (as it has become known), is a transaction in which the mortgage company(s) or lender(s) holding a lien or interest in a property agrees to accept less money than what the seller currently owes on the loan. In a short sale transaction, the seller(s) will not receive any type of funds at closing nor usually will they owe any funds either. All fees and expenses normally incurred by the seller are actually approved by and paid for by the seller’s lender(s) including the brokerage fees earned by the Real Estate companies involved. Often times these fees are reduced by the lender, therefore, as Realtorsâ, we may actually earn less for a short sale transaction that usually requires more time, work and skill.
My primary responsibility as an agent working for the seller, is to ensure that the transaction is consummated in a timely manner for the seller(s) benefit while ensuring the process is efficient, fair and ethical for the buyer(s), lenders and the Realtorsâ involved. Properties that are listed as “subject to short sale approval” have typically already undergone a “qualification” process by the listing agent to ensure that the short sale transaction has a good chance of success. Because not all property owners facing financial difficulties will qualify for short sale consideration and not all lending institutions will approve short sales, some initial steps prior to listing have already been taken. In addition, I have been entrusted with of all the seller’s financial information and have gained written authorization from the seller(s) to communicate directly with their lender(s) and act on their behalf during the transaction. This is a process that involves a degree of negotiation, timing and due diligence on my part and there are a great many factors and issues involved with getting a short sale transaction approved. Because of the long period of time involved with the process (typically many weeks of waiting), short sale transactions are not geared towards all buyers.
1) Upon presentation of a written offer to the sellers regarding their home or property, the sellers will normally sign and accept the offer with the condition that the seller’s lender(s) will also have to approve a short sale for the property. Offers that are contingent upon the sale of other Real Estate, offers that make extraordinary financial or other demands of the seller or offers that are unreasonably low may be rejected by the seller without lender consideration.
2) The buyer’s agent will receive the executed contract along with a Disclosure Regarding Foreclosure and Short Sales form that needs to be signed by the buyer(s). At this time, the potential buyer will be required to provide a mortgage pre-approval letter for financing contingency offers or a proof of funds letter for cash offers. This is generally a lending institution requirement and offers CANNOT be submitted to the seller’s lender(s) without this important document.
3) An order for title insurance and closing work will be started OR updated with the title company chosen by the listing agent to help with the transaction. A fairly accurate initial HUD closing statement outlining all costs, fees and taxes including concessions for the buyer is necessary to include in the short sale offer packet for the seller’s lender(s).
4) Upon the listing agents receipt of all required documents including updated financial information from the seller, an offer packet will be sent to each lending institution involved with the property (in some cases there may be 2 or more lenders). Preparing the packet to ensure that it is complete may take several days depending on individual circumstances. The buyer may also have to provide a copy of their Earnest Money to the listing agent to ensure a complete packet.
5) The process of waiting for an answer to the short sale could take anywhere from several days to 8 or more weeks depending on many factors. Some of these factors may directly relate to the seller’s situation, the complexity of the offer, title issues, our prior pre-planning efforts and the lender’s workload or approval process. Each lender has a different way of doing things and sometimes if more than one lender is involved, one lender’s actions may depend on another’s actions. Though the process at this point is beyond my direct control, I will routinely follow-up with the lender(s) in an attempt to expedite the process. Often times the lender(s) may require additional documentation or information in order to make a decision. Of course this may lead to further delays.
6) When the lender(s) respond to our offer, they may either decline or approve the short sale offer. In most cases, they will respond in writing or via email directly to the listing agent.
a) Decline – Often times the lender instead of “countering” will phrase it as a rejection and may indicate what will work for them through modifications of the Purchase Agreement offer or HUD closing statement.
b) Approval – This will come in the form of a letter addressed to the seller indicating that the lender will accept a net of xxxxx amount (the figure we came up with in our short sale packet) as a settlement of the mortgage with or without other conditions.
7) At this time, it is still up to the seller of the property to accept the lender(s) decision. If the short sale is approved by the lender(s) with additional conditions required of the seller, the seller may attempt to modify the short sale packet or can reject the short sale offer.
8) If the lender(s) or sellers decline the short sale, the buyer will have the opportunity to resubmit another offer on the property. This process may take additional time, but usually an answer will be forthcoming much quicker than with the original offer.
9) If the short sale is approved in writing by both the lender(s) and the seller, the effective date of the Purchase Agreement is considered to be on this date. In this case the buyer may proceed with inspections, financing contingencies and move towards closing. Doing inspections or having an appraisal completed before this time is at the buyer’s own risk. It must be noted that time is of the essence: Most short sale approvals are good only through a specific date. If a closing does not take place by this determined date, the lender may terminate the transaction. Any potential delays must be addressed immediately.
10) Any extra expenses or changes to the short sale approval or Purchase Agreement affecting the lender’s acceptable proceeds must be approved by the lender(s) in writing prior to closing. Properties with “subject to short sale approval” terms are generally similar to foreclosures in that they are offered in “As-Is” condition. If problems arise during the buyer’s inspections or with financing contingencies that will have substantial impact on the property or the buyer’s ability to finance, the buyer has the same right to terminate the contract and receive their earnest money deposit back. In some cases, the seller’s lender may help with possible solutions, but this must also be pre-approved in writing. The seller usually cannot provide any money to help with any repairs or correct any issues that may arise.
It needs to be said that at any time during the offer or short sale process up to the final approval (effective date) of a specific short sale offer, the seller WILL review and approve other written offers. Each offer received by me will be treated independently and if all the documentation is complete, will be packaged and sent to the lender(s) for review as soon as possible. Naturally, those offers that are the most attractive to the lender(s) will have the best chance of being approved. The order in which offers are received is NOT the determining factor in giving priority with this process. Acting in an ethical manner, I will not be allowed to discuss the individual aspects of any other offer with a buyer’s agent or potential purchaser. In all cases, it will be up to myself to treat all parties with fairness and to communicate with buyer’s agents in a timely manner. It is possible that if there are multiple offers on a property, the lender(s) may reject all of them and the buyer who acts the quickest to meet the lender(s) demands will prevail. Once an effective date for an individual offer has been established through the approval process, other offers that have been subsequently approved by the seller and lender can be placed in back-up positions in case the primary offer does not work out and is released through proper procedures.
Short sale transactions are a relatively newer concept in the Real Estate field in which the goal is to create a “winning” outcome for all of those involved. While these rather complex and challenging transactions can result in both financial and personal rewards, they do require patience and relaying timely information. Being prepared for delays and addressing issues quickly are essential elements to ensure a successful transaction. I am here to help answer any additional questions.