Before a short sale file is sent to the bank, there are a number of documents that the seller needs to accumulate. These documents include tax returns, bank statements, proof of income, and a letter of hardship and a worksheet of the sellers’ expenses. This package allows the bank to confirm that the seller has a significant hardship and can no longer afford the loan. Having these documents assembled before a contract comes in insures that the entire short sale package can be submitted to the bank within a few days of the contract being received.
Under Contract
Though there are some short sale programs that can be started before the property is under contract, the bank will be approving the terms of a contract agreed upon between the seller and a buyer. Because the short sale process is so uncertain and the time-lines completely outside of the control of either the buyer or the seller, most short sales will be priced at the lower end of the market values. This is likely to yield more than one offer. When you see multiple offers on a property, this is why. Since the contract is between the buyer and seller, with a contingency that a lender approve the terms, it is always possible that the first offer will not reach the closing table. Sometimes the Bank requires more money, or refuses to pay closing costs, or moves too slowly. These can all be reasons for the first contract to fail. Sellers know that the first buyers often walk away, so they seek back-up offers. Buyers know that by having a back-up offer on a property, they may position themselves to be next in line if the first contract fails.
Submitted: File and HUD to the Bank
The HUD-1 is the form that translates a contract into the anticipated net that the bank will receive from a given offer. It takes the contract price and subtracts out all of the expenses of the sale. These expenses can include real estate commissions, any proposed payoff settlement to the second (if there is one), title insurance, final taxes, seller concessions, and any other anticipated closing costs. If there are any other liens on the property, they will need to negotiated and the payoff settlements reflected on the HUD. Any money that is coming from anyone or going to anyone needs to be shown on the HUD. It is the document that the bank will ultimately base its approval of the short sale upon. It is also the document upon which the buyer's lender will base their final approval of the transaction and it is the first document that is reviewed if anyone audits the transaction in the future.
Inspection
The fact that the seller is having to sell their house for less than is owed is usually an indication that they have no further funds to bring to the transaction. We have found that If an inspection is done early in the process, serious problems with condition may be accommodated for by the bank if we are discussing the problem from the start. For this reason, it is in the best interest of both the buyer and the seller to inspect the property within several days of going under contract. Once the price and terms of the contract have been approved by the bank, they cannot be changed without starting the approval process process completely over with the bank and adding months onto the transaction.
BPO-Broker Price Opinion
The Broker Price Opinion (BPO) can be done by a Real Estate Agent or by an Appraiser depending on the bank. The purpose of the BPO is to determine the current market value of the property. This is the linchpin of the short sale process. If the net from the contract we have comes within striking distance of the BPO (usually 83-88%), the file is advanced to the next stage in the review process. If the net is below that striking distance, the bank will either come back with a counter or reject the contract outright. Depending on the bank, a BPO will take anywhere from 1-3 weeks to get into their system from the time it is ordered. Most banks will require a second BPO and if the first two BPOs have too large a discrepancy, a third may be necessary.
Negotiator Review
Whether they call themselves a Negotiator, Processor, Adjustor, Specialist or anything else, this person's job is to review the file closely and make sure that all of the needed data is current and accurate. Since there is often a substantial lag between the time the file is submitted to the time that the negotiator gets their hands on it, there will usually be the need to update some of the seller’s documentation. The bank will usually want the most current bank statements and pay stubs as well as an updated HUD. Depending on the type of loan and the bank, there may be some additional forms that either buyer or seller needs to complete in order to round out the file. This process can take a few weeks, depending on the bank and the work-load of the negotiator. Once they have a complete file, they will send it to the next phase of the review process.
Investor Review
The investor review should yield an approval of the short sale or a counter-proposal. Usually, if a file is going to be rejected, it doesn't get as far as the investor. The investor has to review the file, reconcile the net and terms against the guidelines and rules of their individual institution and come back with any needed changes to approve the file. If the loan has a secondary lender or is an FHA or VA loan, they will need to review the file as well. If there is Mortgage Insurance on the loan, the insurer will look over the file, as well.
Short Sale Approval/Reconciliation
The short sale approval comes in the form of a letter from each of the lien holders. Depending on the institution, the letter may clearly indicate that the bank will not pursue an of the remaining funds owed to them and it may not. The approval may be accompanied by a requirement of a promissory note for some portion or all of the remaining debt. Just because a bank has agreed to let the property be sold for less than is owed doesn't mean that they necessarily agree to accept that amount as full payment. It is for this reason that we suggest that an attorney and a CPA be part of our problem solving team. The short sale will not be fully approved until we have reconciled the terms of each of the approval letters and made sure that the terms of each one match the terms of all of the others. Once the short sale has been approved, the contract can start behaving like any other contract. Updated title work is ordered, the buyer works on updating their loan approval, the buyer gets an appraisal of their own done, and a closing is scheduled and attended.
It is also important to know that since there are so many entities involved in the approval of the short sale, it is possible that there will be some last minute hurdles to overcome. Sometimes it is as simple as the bank not signing off on the closing in a timely manner, delaying the completion by a day or two. Sometimes it is a more significant wrinkle, as short sale transactions are a moving target and the rules of engagement are changing constantly. Knowing that the end of these transactions sometimes have unexpected hoops to jump through is helpful in managing the stress if those hoops present themselves.
Public Sale Dates
In most cases, the short sale will be working its way through one department while the foreclosure is working its way through another. For this reason, a short sale often comes close to the public sale date. Most banks are willing to extend the public sale if there is a solid short sale offer in the system, but will often wait until only a few days before the sale to order the extension. The extension isn’t official until is shows up at the Public Trustee’s office. All offices except Douglas County have the information posted on the public sites.
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** Overview of Government Programs
** Snapshot of the Foreclosure Time-Line
** Snapshot of Foreclosure Time-Line Video
** Short Sale vs. Foreclosure Comparison
IMPORTANT NOTICE
The Federal Trade Commission issued the Mortgage Assistance Relief Services Rule 16 CFR 322 (MARS).
MARS defines "mortgage assistance relief service" to include: "negotiating, obtaining or arranging a short sale of a dwelling."
You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender(or servicer). If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us the amount agreed in our listing agreement for our services. Keller Williams and My Home Team are not associated with the government and our service is not approved by the government or your mortgage lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
