What is a Short Sale?
What is a Short Sale?
The definition of a Short sale is that we are asking the Sellers’ mortgage company to take less than what’s owed on the property. This is not a bank owned home! This home may not be in the foreclosure process and it is possible that the Seller may not be late on his or her payment.
Will I qualify for a Short Sale? The first step toward qualification is to list your home for sale with a licensed Realtor. You cannot Short Sale your home when it is for sale by owner (FSBO). You must also sign an Authorization Form,
provided by your Realtor, that authorizes your Realtor to speak to your bank on your
behalf. Your Realtor should get the Listing Agreement and Authorization Letter to the bank immediately and then begin marketing the property.
Sounds easy, but do I qualify? You will not know if you qualify for a Short Sale until we have an offer or a Purchase Agreement (PA) on the home. Until we have a PA the bank does not know how “short” your short sale will be and therefore has nothing to approve.
What do I do when we have an offer? Two things must happen as soon as an offer is Submitted. Your Realtor must contact a title company and have a HUD drafted. A HUD will show what the bank will net after all fees have been paid.
Do I have to pay any fees? No, the bank will pay all fees including the real estate commission that is paid to your Realtor.
What will my Realtors commission be? The commission is determined by the bank and is non-negotiable. Your Realtor will then submit the offer, HUD and qualification letter from the Buyer to the bank. The second thing that must be done, is you, the Seller, must submit a HARDSHIP PACKAGE.
What is a Hardship Package? A Hardship Package consists of 5 things that must be submitted immediately: Your Realtor will submit these items to the bank for you
1. Hardship letter – stating how and why you are in a short sale situation
2. Financial P&L – list of all your monthly income and outgo
3. Last two pay stubs (if you are working)
4. Last two months bank statements
5. Last two years W-2’s
Now that the Listing Agreement, Authorization Letter, Purchase Agreement, HUD and Hardship Package are into the bank what is next? As soon as all of these docs are in your file will be assigned to a negotiator. The negotiator does NOT have the final decision, but will prepare a recommendation and order a Brokers Price Opinion (BPO). What is a BPO? It is another name for an appraisal except it is performed by a Realtor and therefore a lot cheaper. The bank will choose the Realtor to do the BPO from an unrelated real estate company. Once A BPO is ordered we are on our way to success.
If the negotiator does not make the final decision who does? After the BPO is returned the file will be sent to Negotiator II and sometimes Negotiator III. All depends on the bank and the size of the loan/offer. Each negotiator has an approval limit.
How will I know when I have been approved? The negotiator will send an approval letter to your Realtor. The letter will outline all the terms and conditions of the short sale. If you are approved it will say something like “….If all of the above terms and conditions are met by the specified date the Owner will be released from the lien.” At this point it is up to the title company to ensure all terms and conditions are met. It is critical that the Buyer for the property have his/her financing in place as the Short Sale approval will give a specific date of when this deal must be closed by. If it is not closed by that date severe penalties apply and extensions are rare or painful.
I have both a 1st and a 2nd lien on my home, how does this change things? This means all of the above steps must be done twice. A hardship package must be sent to each bank. The first lien holder will pay off the second anywhere between $1500-$3000.00. Your Realtor will have to coordinate this most delicate timing. The first will not sign off without the second and the second will not sign off without the first and neither one wants to go first. It takes a Realtor with some finesse to properly execute a Short Sale on your behalf.
Who will be at the Closing? You, the Buyer and the Realtor/s. The bank/s approving the Short Sale will not be present. Their funds are wired directly to them. Will I get any money at the Closing? No, one of the conditions of the Short Sale is that the Seller net zero. How will this affect my credit? If you can no longer make your payment or have to sell and your home is no longer worth what you owe then you should ask your bank what they want you to do. They do not want you to go all the way through the foreclosure process. Selling on a Short Sale will bruise your credit where foreclosure will ruin your credit.
From when I first miss a payment, how long do I have before I am foreclosed on? In Michigan you have one year. In the first 6 months you can catch up your payments at anytime and stop the foreclosure. During the second 6 months you would have to payoff your entire mortgage to stop the foreclosure process. Hitting the lottery would be your best bet. How do I know when I have reached the point of no return? The second six month period is called the Redemption Period and is begins at the “Sheriff Sale”. Sheriff Sale sounds scary, will a Sheriff come to my house? No, but a server will. A server will post a notice on your door letting you know the sheriff sale date. Simply remove the notice from your door, read it and retain it for your records. This means there is no turning back and if you"re Realtor has not been aggressive with your price point they better start now. It is worth noting that a property that is on 3 or more acres has a Redemption Period of one year.
How long does the Short Sale process take? From the time you receive an offer to the approval letter it can take anywhere from 3-4 months. How come it takes so long? Every time a document is submitted to the bank it takes 72 hours to scan it, down load it, review it, lose it, resend it, rescan, reload, vacations, negotiator quit, bankruptcy and bailouts the time flies by. Can my Realtor make it happen sooner? No, your Realtor can guide it through the process but cannot make it go faster.
I am in the Redemption Period, but have had very few showings? Then you are still priced too high. Reduce the price until you are having frequent showings. Banks are reluctant to approve a Short Sale during the last 60 days of the redemption period. If a short sale takes 3-4 months and the last 2 months are out there is limited time left.
When I receive an offer should I sign it and consider my home Pending? This depends on the stage of foreclosure, amount of offer and strength of buyer. Late stage, low offer and weak buyer, yes and yes. Early stages, sound offer, solid buyer then yes and yes. Your Realtor should be your trusted advisor and weigh each of these conditions to secure a successful Short Sale.
Information herein deemed accurate but not guaranteed.
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