A short sale defines the process of selling your property for less than the amount of debt you owe, thus short of the outstanding obligations secured by your property. The process is both cumbersome and includes two separate negotiations in order to complete.
The first part of this transaction is similar to a traditional sale in the sense that it involves finding a buyer interested in purchasing your property at a particular price under certain conditions. Just like a traditional sale, you as seller, would likely find a licensed REALTOR®, list your home for sale, reflecting current market value, and work diligently to find a ready willing and able buyer. At the same time, your Realtor or a member of their negotiation team would begin the process of notifying your lenders of the unfortunate financial circumstance and your intention to sell the property to avoid impending foreclosure. I should note that it is possible to complete a short sale even if you are not in default on your loan; however you and your agents face the difficult task of convincing your lender that it is a better financial decision for them to allow you to sell for less than you owe.
If you have alternatives other than foreclosure, they are unlikely to agree to the loss. Here’s where time stands still… Banks are facing record numbers of foreclosures and are woefully understaffed. The overwhelming numbers of defaulted loans, loan modification requests, short sale requests, and foreclosure proceedings have simply over-taxed the system. Their only choice to address the onslaught is to automate and outsource. To meet this demand with few experienced employees, some of the larger banks have broken down tasks into different divisions, creating several layers of customer service reps, loss mitigators, asset managers, collection departments, and so on to address only certain aspects of your file. “Escalating” your file can take days, even weeks, before the right person has the opportunity to confirm receipt and begin discussing your situation.
Perhaps the least pleasant part of the process for most homeowners is the collection of financial records, bank statements, tax returns, pay stubs, hardship letters, and all the other documentation that is needed for the bank to consider your request. For many the list seems endless and sharing financial difficulties are, well, difficult. Yet each bank requires full and complete short sale packages to be submitted before they begin reviewing your request. If you present an incomplete package your file is simply closed.
It would make things easier if you and your Realtor could start the process immediately, right? Unfortunately it’s not that simple. Like a MASH unit behind enemy lines, the war on foreclosures requires banks to focus on homeowners with the most critical need. This means banks will only consider opening a short sale file with a valid offer from a qualified buyer. Therefore, you cannot begin your discussion with the bank until you have found a buyer willing to write an offer at or near current market value. Patience is a virtue… You can imagine how frustrating it can be for a buyer who writes an offer to buy your home and is then required to wait weeks for a response. To compound the problem, the bank’s response is not likely to be, “Yes, thank you for offering to pay us less than what is owed, we gladly accept your offer.” Most sellers and their buyers are lucky to get any sort of response other than “no,” or “rejected.”
For smart sellers and Realtors who properly price homes for sale, multiple buyers have presented themselves at the ready. For those, we move past a verbal acceptance and begin the middle innings of the short sale process. The Broker Price Opinion or BPO. There are two discussions that occur at the bank while deciding which direction to go on your file. First, what is the current market value of the home in question? Second, how much would we net today with the offer at hand, versus how much would we make several months from now if we continued into foreclosure and sold the home when it became an REO? To answer these questions the banks hire other real estate agents, known as BPO agents, to give their unbiased opinion of value after a thorough interior inspection (the exception to this statement is FHA loans, which require licensed appraisers to determine market value).
This process alone can take up to one week to order and allows for up to one week (sometimes longer) to complete. What about the details? Assuming you’ve come this far, and your buyer is still interested, a BPO value within an acceptable range of the offered price will begin the process of determining the net vs. gross to the bank. Details like who pays for title, escrow and transfer tax? Are there physical defects that need to be cured, and what about the termites? Since the seller is not receiving any financial gain (profit) at the time of sale, he or she is unable to pay for any of the customary or negotiated costs incurred at the time of sale. These seller costs (including Realtor commissions) ultimately falls on the lender at closing. Although small fees on their own, these fees can add up to 10 percent of the sale price on each transaction. Always looking to protect their investors interests, banks will fight tooth and nail to minimize these costs on the HUD-1.
NFRC Label
