Short Sales - for Sellers

What is a short-sale?
A short-sale occurs when a bank decides to take less than what is owed to them instead of foreclosing on a property.  Banks incur additional costs when they foreclose on a house, so when given the decision of foreclosure or a short-sale, the short-sale option can often be appealing.  Homeowners forced into short-sales must demonstrate to the bank that they are financially insolvent.  They must explain how their current income doesn’t meet their financial needs and describe why they believe that their situation won’t improve.  Sellers in a short-sale are not allowed to pocket any of the proceeds.

Why would I want to sell short?

A short-sale will seriously damage your credit, but a foreclosure will be worse.  With careful spending and the right amount of credit repair, the seller of a short-sale may be able to buy again in about two years.  If you fall victim to foreclosure, your credit will take an even larger hit and you won't be able to get another mortgage for seven years.  Don't wait until you lose your house . . . take control of the situation and give yourself the best possible exit strategy.

Common items in a short-sale

1. As the seller of a short-sale, you're not charged any closing costs, nor are you allowed to profit from the sale.  Do not expect any cash after closing.  Your benefits include an extended stay in the house while the sale is being approved, the removal of the debt, and the opportunity to qualify for another mortgage after two years.
2. The property is being sold as-is.  As the seller, you're not expected to make any repairs.
3. A Temite Clearance is rarely included.
4. A Home Warranty is rarely included.
5. Delinquent HOA fees, HOA penalties, and HOA transfer fees are often not covered by either the lender or the seller.
6. If a second lender is involved, the short-sale process can be more difficult.  If the second lender doesn’t agree to the short-sale, the short-sale will be denied and the property will go into foreclosure.  Often, the buyer is asked to pay the second lender an additional sum of up to $10,000.

Short-sale negotiators

Short-sales are never guaranteed.  Professional short-sale negotiators greatly increase the odds of a short-sale approval (usually by more than 50%).  Sometimes this fee is split between the buyer and lender, but often the buyer is asked to pay the full fee.  Short-sale negotiators should never charge more than one percent of the purchase price as their fee.  Should the deal fall through, the short-sale negotiator gets nothing.

Short-sale process

The short-sale process is long and grueling.  While the bank has very few tasks to actually accomplish, they often take months to complete them.  Here is a list of the necessary tasks and an estimated timetable:

1. As soon as you decide to move forward with a short-sale, we'll need to hire a negotiator.  Our negotiator will work as our representative with the bank.  He'll also help you collect all the necessary documentation to prove your short-sale eligibility to the bank.
2. Once we've submitted our initial package to the bank, we'll take the listing active.  However, it's not until we receive a quality offer that the short-sale process truly begins. 
3. The lender must assign their own negotiator.  This negotiator will manage the file and help the lender decide if the payoff is reasonable.  Even though this task seems simple, it often takes a full month before the file is assigned to an official bank negotiator.
4. The bank negotiator must order a Broker Price Opinion (BPO).  The lender asks a neutral broker to estimate the value of the property as if they were to listing it themselves.  This process can take up to two  weeks.
5. The bank negotiator must order an appraisal.  The lender wants double verification that the value they’re taking is close to actual market value.  This process can take an additional two weeks.
6. Finally, the lender must estimate all their costs and determine if the payoff is acceptable.  In the event that there is a second lender or a mortgage insurance company, this process involves getting all the parties with an interest in the property to agree to their respective payoffs.  This can take an additional month. 

If the lender decides the agreed upon price and terms are acceptable, you’ll get an approval and enter Escrow.  If not, they’ll likely issue you an approved price and require a higher offer.  Once Escrow is opened, you'll have between 15 and 45 days to move out (depending on the terms of the deal).  Make sure you have a plan in place well before we receive an approval.

If you're interested in taking control of your situation and exploring the possibilities of a short-sale, please fill out this form.