Tuesday, February 3, 2015

The Basics of a Short Sale

What is a short sale?

A short sale is when a homeowner is no longer to make their house payment and are behind but don't want to just walk away and give it back to the bank OR when they have a hardship.  The owner must ask the bank for permission to sell the property at a lower price than what they owe on it because it won't sell for the balance of their loan.

Why won't the property sell for that amount?  This happens for a few different reasons like:

  • There are multiple loans on the house.
  • The neighborhood is selling for less now than what it was when the property was purchased.
  • The home is in disrepair and would not sell for a higher price in the condition it is in.

What is a hardship?

  • Unemployment / Reduced Income
  • Divorce
  • Medical Emergency
  • Job Transfer Out of Town
  • Bankruptcy
  • Death

Information on submitting an offer on a Short Sale

  • An offer will be presented to the seller of the home to accept or deny.
  • The amount that the bank will accept is not known to the seller until they submit their first offer.  Just because the house is listed on the market for a certain amount does not always mean that the bank will accept that amount.
  • Banks will want to receive an offer somewhat close to the market value.  These are typically not sold for way below that market value.
  • Buyers may wait a very long time to get a response from the bank.  There is no set amount of time that a bank has to respond with an answer.
  • An offer can be recanted at any time as long as it has not been accepted by the bank.
  • There is a little bit more paperwork that is involved with a short sale.  It is all provided to you when a bid is submitted and turned in as one packet.
  • The bank is requiring to have a pre-approval letter submitted with bids. 

The Short Sale Process at the Bank

  • Bank acknowledges receipt of the file.  This can take 10 days to a month.
  • A negotiator is assigned.  This can take 30 to 60 days.
  • A BPO is ordered.  This means "broker price opinion".  Companies hire a real estate broker to prepare an opinion of the value.
  • A second negotiator may be assigned.  This can take another 30 days.
  • The file is sent to review.  This can take 2 weeks to 30 days.
  • The bank may then request that all parties sign an Arm's Length Affidavit.  This means that you don't personally know the seller and are trying to assist them by purchasing the home.
  • The bank issues a short sale approval letter.

Some short sales get approval in 6-8 weeks after an offer is submitted.  Others take 90-120 days, on average.