A Seller’s Guide to the Short-Sale Process
June 12, 2009 by Danilo Bogdanovic
Filed under Short-Sales and Distressed Properties
Some of you may be wondering how you can go about selling your home the “short-sale” route, but aren’t sure how it works. Well, here’s what I call a “Seller’s Guide to the Short Sale Process”…
First and foremost, let’s define “short-sale” as it relates to real estate today:
A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold
If you’re not sure whether you’ll be “short” if you sell the house, hire an appraiser or ask a Realtor to do a CMA for you and deduct the balance of your mortgage(s), any line of credit(s), other lien(s) and cost of sale from the estimated market value of your property. Once you’ve done that, you’ll have a good idea of whether you’re “short” (assuming the appraisal or CMA are accurate).
Let’s assume that you’re “short” and want to move forward with a short-sale. What are the next steps.
Well, fellow Virginia Realtors and bloggers Sarah Stelmok and Jeremy Hart beat me to the punch by about 24 hours with their posts on short-sales. So, with their permission, I’m going to cite their explanation about the process to save some time.
If you are a Seller considering a Short Sale in your property, you will need to gather the following information:
- All lien holders names and contact information
- All loan numbers
- A Third Party Authorization Form - this will allow the bank to discuss your short sale with your REALTOR. It needs to be agent and loan # specific and have an indefinite end date Some banks have their own form; others will accept any form you prepare. You need to get this to the bank as soon as you hire a REALTOR.
- Listing Agreement - this should include a CMA of the property to justify your list price
- 2008 and 2009 W-2s - or the tax forms that you filed if you do not get W-2s.
Once you have all of these items, the next steps are…
1. List the property for sale– Some banks want the property listed for the amount that is owed first, and they will be willing to drop to a more realistic price after a period of time. The listing agent will need to back up their list price with a good CMA! Remember, a BPO will be called out as soon as they receive a contract.
2. Receive and ratify a contract – needs to be ratified by the seller and buyer. Some banks want one contract at a time; others want to see them as they come in. Another reason to contact the bank ASAP.
3. Send Contract to Bank - get confirmation from the loss mitigation offer at the bank and preferably written proof of receipt
4. You will also need to send – all of the paperwork including the hardship letter you gathered/prepared prior to listing your property for sale (see earlier part of this post). The bank may ask for other items not listed here. They may also send you additional forms and paperwork for you and/or your agent to sign.
5. Be persistent, but patient - Make sure you ask how long it will take for a contract to work its way through the system. You want to hear it will take 30-45 days, but they may tell you that it will take just that long for them to even look at the file as is the case with CitiMortgage. You also want to ask about the likelihood the loan will be sold. They like to sell the loans right before they give you approval, and you’ll have to start the process all over if they do.
6. Stay as current as possible - Make sure you don’t get more than 2 months behind. Some banks will allow you to get up to 9 months behind, but they are harder to negotiate and keep off the auction block. If you don’t know what their policy is, ask.
These steps will need to be done for each bank that is involved and each bank has their own process. Some banks that are in 2nd position (2nd trust/mortgage) will only start processing their short-sale after they’ve received written short-sale approval from the 1st trust. This means that the overall short-sale approval process may take twice as long with two trusts/mortgages.
If you are considering pursuing the Short Sale route to sell your home, it is important that you consult an attorney that is familiar with the process. It is also important that you use a REALTOR who is trained in the short-sale process and has experience in Short Sales.
So I hope that this helps you out (thanks again Sarah and Jeremy). If you’re in a situation where you’re about to fall behind on your mortgage and/or are considering a Short Sale, contact me to chat about it and see what options you have.
Related Articles
Short Sale (real estate) - Wikipedia
Percentage of Short-Sales Being Approved Increasing
10 Questions To Ask Before Writing an Offer on a Short-Sale
D, I know I’ve already told you this but this is a great post. And the “10 Questions To Ask Before Writing An Offer On A Short Sale” might be even better. Thanks for putting these together for a newbie like me!
Thanks Jeremy. I’m just paying it forward like it was done for me by Sarah, Frank, my broker Simon and many others.
Iím not that much of a online reader to be honest but your sites really nice, keep it up! I’ll go ahead and bookmark your site to come back later on. All the best
Thanks for this post. The only thing I’m still hazy on is the division between what the Realtor does and what the lawyer does.
Pete - Thanks for taking the time to read the post and for your comment. Can you clarify what you mean by “division between what the Realtor does and what the lawyer does”? Are you talking about the offer/contract process between the seller/buyer or the short-sale negotiation process with the bank or…? And which state are you in? (Each state has their own laws governing real estate transactions)
Hello,
I’m in VA.
>division between what Realtor & lawyer does
I guess I can guess that the Realtor is the one that tries to get a sale to go through, so maybe my question shouldn’t have been who does what.
Who talks to the seller’s bank/mortgage co. and maneuvers the system and fights for them to not be told that they’re still on the hook for the deficiency, as I’m just plain sure would happen if the homeowner themself were the one trying to do it. Is it always only lawyers who do this in VA?
Thanks.
Pete,
Thanks for the clarification. If I understand correctly, what you’re asking is, “Who is the person responsible for speaking with/negotiating the short-sale?” The answer to that question is, “the seller or whomever the seller authorizes to negotiate the short-sale on their behalf”.
The person negotiating the short-sale does not have to be a lawyer and most times is not. Though the seller can negotiate the short-sale with the bank themselves, it’s most often the listing agent/broker or a “short-sale negotiator” who deals with bank on behalf of the seller. Some agents are well versed and experienced with short-sales while others are not. The same holds true for “short-sale negotiators”. Some are great and very experienced while others are not. In addition, “short-sale negotiators” do not have to be a licensed real estate agent/broker nor lawyer nor are they required to have any form of special training nor license. They (and real estate agents) can even call themselves an “expert” if they choose so be careful and check their experience, short-sale success rate and overall credentials.
As far as still being on the hook for the deficiency, that’s tough to get out of in VA. Even the best agents and short-sale negotiators can’t get every short-sale approved with the deficiency removed completely. There’s no guarantee for that to be removed and it depends on the specific seller’s situation, the specific bank(s) and the mood of the person at the bank(s) you’re dealing with.
Hope I answered your question Pete. Feel free to call me to chat in more detail - 703.582.6900 (cell).
Danilo