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All this week, we will be discussing short sales here on ForeclosureBusinessNews.com. In yesterday’s post, we gave the definition of a short sale, in addition to info on why lenders do short sales, the credit implications for homeowners who go this route and even some tax implications of selling hour home via the short sales process.
Now that you have some foundational information on it, today we’re going to discuss the bank shorts sales process for sellers.
Short Sale Process for Sellers vs. the Short Sales Process for Buyers
Most of the info you’ll read on short sales discuss it from a buyer’s perspective. But, since his blog is primarily about dispensing information to help homeowners avoid/get through foreclosure (as opposed to investors), we’re going to talk about the short sales process from the seller’s perspective.
So, let’s get to it.
The Bank Short Sale Process
The first thing you should know about doing a bank short sale is that the process varies from lender to lender. With this in mind, following are the necessary steps to complete the short sale process if you’re a seller.
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Step I. Offer is submitted to lender, along with a completed short sale package from the seller.
What is a short sales package? What’s in the short sale package?
A short sales package is simple a packet of documentation that is needed to start the short sales process. This package should be completed by the potential buyer, as well as the seller. Documents included in the package can include, but are not limited to:
Anything that can verify income: eg, pay stubs, bank statements (usually 2 months), investment statements, disability statements, child support statements, alimony statements, tax records (usually 2 years), W2s, 1099s, etc.
Realtor info: eg, a listing agent agreement.
Legal disclosure forms: eg, an authority to release information to necessary parties
Hardship Letter (from Seller): See sample short sale hardship letter for what to say, correct format, how to mail it off to your lender and more.
A Cover Letter: This is provided by the investor/buyer (not the seller), and basically tells the lender who they are as an investor, that they’re requesting a short sale and why it would be in the lender’s best interest to proceed with the short sale.
Documents that Support Your Hardship: Eg, medical records proving your disability, unemployment benefits because you lost your job, bankruptcy filing, creditor suits, HOA and other liens, etc.
Property Records: Any repairs necessary on the property, sales comps (eg, what surrounding properties have sold for recently), mortgage holder info (for all mortgages), HELOC loans, title reports, etc.
Note: If you have a VA or FHA loan, they may have their own stipulations of what they want you to provide in the way of records.
This list is by no means exhaustive. If you use a short sale specialist (eg, a realtor who specializes in handling these types of deals), they’ll be able to guide you as to what paperwork is needed each step of the way.
Step II. Lender Acknowledges Receipt of Your Short Sale Packet
This can be as little as a week or two, on up to one or two months. In the current real estate market, it’s taking many lenders much longer to even getting around to acknowledge receipt. That’s why sending the packet certified mail with a return receipt requested is the best way to go.
If you haven’t heard anything after a couple of weeks, start calling until you can verify that they have indeed received the package.
Step III. Lender Orders Appraisal
Since you’re doing a short sale, the lender will want to know the current value of the property in order to assess whether the offer you as a seller have on the table is a good one.
In a normal market, this would take one or two months. In this market, homeowners have waited 6 months or longer.
Yeah, it’s a crazy time folks.
Step IV. Short Sale Offer is Reviewed
Again, in a normal real estate market, this would only 30 to 60 days. Nowadays, months, or even a year or longer is not unheard of.
Step V. Short Sales Process Negotiator Is Assigned by Lender
After offer is reviewed, his can take anywhere from a month or two; but in this foreclosure-ridden market -– and I hate to sound like a broken record – it could be longer.
There can be a lot of back and forth in a bank short sales process because, obviously, the bank wants to get as much for the property as they can. And, this is a reason many short sale deals don’t close.
How Many Short Sales Actually Close?
Many buyers go in thinking they’re going to get a steal, eg, pay 50% or more less for a property than it’s worth. The truth is though, most short sales sell for about a 20% discount.
Find out more what happens during the negotiation phase of the short sales process in the post, How many of your short sales are closing? on the popular real estate site Trulia. It’s a trip what happens – on the buyer as well as the seller side.
FYI, estimates of closing rates for short sales in this posting range from 25% to 100%, so it varies a lot.
Step VI. Short Sale is Approved or Rejected
At this point, you either rejoice because you’re finally free, or you cry because it didn’t go through and it means more of a headache (or you cry because you REALLY have lost your home).
So there you go, the bank short sale process from beginning to end.
The Stress of the Bank Short Sale Process for Sellers in Today’s Market
As the linked-to Trulia.com post above highlights, the short sale process can be draining. And today’s market makes it so much worse.
Many sellers facing foreclosure are stuck because the process moves so slow. And, some lenders can be unreasonable in how much they’ll accept for a property. When this is compounded by things like lenders/agents not returning calls, potential buyers moving on to other deals because they can’t get an answer about if/when their offer is accepted, it can be emotionally draining .
Just keep all of this in mind going in and hope for the best.
Short Sale Specialists: A Homeowner’s Best Friend During This Process
One of the pieces of advice that kept popping up over and over again in researching this article on the bank short sale process is to get a knowledgeable realtor, one who specializes in short sales to help you if you decide to go this route. And, when you discover what’s involved, it’s easy to see why they can be worth their weight in gold.
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Copyright © 2011 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.