The short sale process is very complicated and can take a long time. It is still very confusing to many people despite all the resources available and can really drag out a sale. Additionally, emotions are usually running very high for both the buyer and the seller during the process. It's extremely difficult to think clearly during emotional times, creating even more confusion. High emotions are just the tip of the iceberg. Many of the Buyer Agents lack experience with short sales and are looking for someone to help guide them along. Sadly, in a lot of cases, the listing agent lacks experience as well.
The timeline can be a real dilemma for all parties involved. The lender or the bank holds all the cards, and there's a lot on their end to review. So let's list out the process and try to identify possible sticking points that can hold up a sale.
For people not sure, a short sale is when a homeowner owes more money on their home than what it's worth. For many people, being upside down in your house can appear to be a hopeless situation. Banks will consider issuing a short sale when an owner experiences a hardship or if there is not enough equity in a home to cover the current mortgage after closing.
Not every hardship will qualify to initiate the paperwork. Banks have been known to start the short sale process in particular circumstances which could include unemployment, bankruptcy, medical emergency, divorce or death. Not every Bank follows the exact same process because they have their own internal guidelines to follow. However, generally speaking, the broads strokes will be very similar. Both the buyer and seller agents will want to be familiar with the bank's guidelines. This single step alone can save a lot of time.
The person selling the home will need to prepare a package for the bank. The more specific and organized you are the quicker the process can be. Often times, people include too much misinformation and submit it in a disorganized manner. The more organized you are, the better the experience will be with the bank. Find a mentor to help if you need it. The last thing you want to do is muddy up the process by submitting confusing information.
Keep things as simple as possible. There are nine things you want to include in your package.
1) The first thing your package should include is the seller's hardship letter. The letter will need to be well written, consisting of fundamental facts and how the situation is impacting your current hardship.
2) Prepare two years worth of W-2s. The W-2 will help support the facts you've claimed in your hardship letter.
3) 60 days of banking statements. It may seem silly to provide banking statements to your own bank, but Including these forms into your package will cut down on time.
4) Your personal financial statement. This helps to complete the full picture in your file. Multiple people at the bank will see your file, and it's easier to have all this information in one place.
5) You will want to include 30 days of pay stubs. There are forms internally in the bank that require this information. The less they need to look for the better.
6)Include a letter of authorization from your agent, so your agent can talk with the bank. Have your agent's contact information readily available and attached to the top. This will allow future communications to be smooth.
7) Twenty Four months of tax returns. Again different departments in the bank are required to see various forms. The more comfortable you make it for them, the better.
8) Provide a preliminary closing statement. This indicates you've done you're homework and have a clear plan of action.
9) Providing a list of comparable market listings goes a long way in seeking the outcome you're after instead of leaving it to the bank to drawing their own conclusion.
The next step is to have the buyer agent write a short sale offer. But first, the offer price must be reasonable and align with other listings in the area. The bank isn't in the market of letting go of mortgage obligations at basement pricing. So, this step must be realistic. It's acceptable to use a lower pricing structure to encourage multiple offers.
On occasion, short sales can start before an offer, but this isn't always the case. Usually, the process commences when the offer is accepted, and the listing agent provides the proper documents to the bank. These documents will include the listing agreement and the buyers pre-approval letter. A copy of the check and proof of funds. The executive purchase offer and finally, the listing agreement.
If the package is not simple, clear and complete, the process will experience a delay. The process at the bank will likely be slow regardless and can test anyone's patients. You've done everything you can at this point, and it's now up to the bank to do the rest. It's essential the buyer agent understands they do not have the authorization to speak with the bank so calling them will only aggravate them.
I've seen the process take up the four months at the bank. Behind the scenes, many things need to happen. Knowing this ahead of time can save yourself a lot of grief. The buyer should understand this as well, so they don't look to cancel out of the deal.
The bank will formally acknowledge receiving the file. Depending on the size of the bank this process alone can take up to 30 days. The bank will then assign a negotiator and have them review the file. They will then have a broker priced opinion analysis done. The bank will keep the results confidential and may even assign a second negotiator based on the findings. The bank will then review the original pooling and servicing agreement made for investors. Lastly, the bank may have everyone sign an arms-length affidavit before issuing a short sale approval letter.
In conclusion, It's important to keep everyone informed of the process because you can see where this can amplify peoples emotions. It's not always the bank that slows the process, but often it's the investors involved in the initial Lending.