Why would a bank accept a short sale?
Banks grant short sales for 2 reasons:
- Seller has a hardship and;
- Seller owes more on the mortgage than the home is worth.
Examples of possible hardships:
- Unemployment or reduced income
- Medical emergency
- Job transfer out of town
The seller will need to prepare a short sale financial package for submission to the bank. Each bank has its own guidelines but the basic procedure is similar from bank to bank.
The seller’s short sale package will most likely consist of:
- Letter of authorization, which lets your agent speak to the bank.
- HUD-1 or preliminary net sheet
- Completed financial statement
- Seller’s hardship letter
- 2 years of tax returns
- 2 years of W-2s
- Recent payroll stubs
- Last 2 months of bank statements
- CMA (Comparative market analysis) or list of recent comparable sales
Writing the Short Sale Offer and Submitting to the Bank:
Banks are not giving away homes at below market value prices. The bank will want to receive somewhat close to market value.
After the seller accepts the offer, the listing agent sends the following items to the bank:
- Listing agreement
- Executed purchase offer
- Buyer’s preapproval letter and copy of earnest money check
- Seller’s short sale package
If the package is incomplete, the short sale process will be delayed. A listing agent experienced in short sales will be more knowledgeable and therefore may avoid possible problems and delays.
The Short Sale Process at the Bank
Buyers may wait a very long time to get a response from the bank. If buyers are the type with little patience, perhaps a short sale is not for them. Real Estate agents should prepare their buyers that purchasing a short sale property may be a very lengthy process.
Possible bank process:
- Bank acknowledges receipt of the file. This can take 10 to 30 days.
- A negotiator is assigned. This can take 30 to 60 days.
- A BPO is ordered.
- The bank probably will refuse to share the results of the BPO.
- A second negotiator may be assigned. This can take another 30 days.
- The file is sent for review or to the PSA. This can take 14 to 30 days.
- The bank may then request that all parties sign an Arm’s-Length Affidavit.
- The bank issues a short sale approval letter.
Some short sales get approval in 6 to 8 weeks. Others take 90 to 120 days, on average