The Buyer’s Guide to Short Sales

Short Sale Definition:  A home being marketed for less than the mortgage balance, in cooperation with the lender(s), in order to sell the home at current fair-market value, to avoid foreclosure.  A contract to purchase is between buyer and seller only; HOWEVER, the lender must “bless” the sale and give a satisfaction of mortgage (clear title).

The Key Is Patience:  Short sales can be lengthy and frustrating.  However, it is great way to purchase what is often a very nice home at foreclosure prices.  Sometimes the homeowner is still living in a short-sale home; therefore, the home is maintained and less vulnerable to vandalism and theft.

Once a short-sale offer has been accepted by the seller, the process for bank approval is outlined below.

1.      A draft HUD-1 is requested from the title company  breaking down all closing costs, giving the lender(s) an idea of what the lender’s final net will be after expenses.

2.      Purchase offer, HUD-1 and other relevant paperwork is faxed to the lender(s).

3.      The primary lender usually orders an appraisal or a Broker’s Price Opinion (BPO).  The appraisal/BPO process can take up to 4 weeks from the time it is scheduled until the bank receives the report.

4.      File is assigned to a negotiator.  Due to large volume of short sales, it can take four or six weeks before the negotiator reviews the file and prepares a package to submit to management for approval or denial.  This entire process can take anywhere from six weeks to six months, depending upon the individual lender.  Generally during this time, the seller’s agent will call the bank on a regular basis for updates. 

5.      After calculating their final net number after all closing expenses are deducted, the bank will either accept the offer, decline the offer, or counteroffer.  A buyer should continue the negotiation if possible, as most banks are being very reasonable with their counteroffers.  The negotiation can also include requesting the seller to donate some monies toward a favorable compromise.

6.      Generally, resolution can be accomplished within 60-90 days UNLESS there are other parties involved, such as a Private Mortgage Insurance (PMI) company, or an outside investor. 

Times are approximate, based on my experience in handling these transactions.  It is important for buyers to understand the short-sale time frames differ with each lending institution.  Too often, an impatient buyer will withdraw an offer just a day or two prior to bank acceptance, which is very damaging to a seller, whose property may have been off the market for months.  A buyer who pulls out may leave a seller no time to recover before the lender forecloses, which could be devastating to their credit.  Seeing a short sale through to the end can be a win-win situation for all parties.