June 1st, 2008
What Is A Short Sale And Is The Process Different When You Buy One?
Simply put, a short-sale is when the homeowner sells their home for less than the mortgage amount they owe on the home.
With a short sale, the homeowner must negotiate with the lender to get approval to sell the property for less than the owner owes. This can be difficult. The lender is not going to just give away money. If the seller can bring the difference between the amount owed and the amount the property will sell for, in cash at closing then the lender will probably be ok with it, since they will get their money back.
If this isn’t the case, then the lender may either require the seller to pay back the difference over time, or the lender will releave the seller of any debt obligation (not very likely).
So, the property ends up on the market for sale. Any contract brought forth on the property will have to have all parties involved agreement on the contract. This means if there is a first and second mortgage, then the Seller, Lender #1 and Lender #2 all have to agree to the contract. When there is a first and second mortgage, it WILL take a long time, as the two lenders negotiate over the amount each will get.
The process to buy a short-sale property is and isn’t different than a normal transaction. It isn’t different because you preview the property, and right up an offer to buy the property, much the same as you would any other property.
It is different because you have several different entities that make a decision to accept the contract or not, and it can take a LONG time to get a response. Heaven forbid you get into escrow and find out something unexpected and ask for a credit or a price reduction. Then it could be another 30 days before you hear back on that issue.
I was just asked the Question: “How long does it take banks to respond to an offer on one of their foreclosures/short-sales?”
The best answer, just came to me from my Countrywide rep, which also explains their process:
A Short Sale Support Team is now available to handle all the inquiries and status calls from our borrowers, their agents or our employees. This team is already handling thousands of short sale requests.Each potential short sale is reviewed on a case-by-case basis. Customers with accounts whose payments are completely up-to-date and current will not be considered unless there is an eminent hardship. The approval of a specific short sale can only be discussed among the homeowner, seller or their agent and our Short Sale Support Team, and the decision can take as much as 30 days from the date the Team receives the purchase contract and preliminary HUD 1. The decisioning time varies based on the ability to obtain access to the property for an appraisal and on the financial situation of a particular customer.
All time-lines noted herein may vary based on the volume of short sale activity, thoroughness of packages and the particulars of the specific transactions. They are meant to be utilized as guidelines and as a means to set appropriate and approximate expectations.Short Sale Process
- Customer and/or authorized real estate agent contacts Short Sale Support Team to request information on the process and documents needed for the short sale program.
- The customer and/or agent faxes signed purchase contract, listing agreement and Preliminary HUD 1 to dedicated short sale fax.
- The Short Sale Support Team contacts the customer and/or agent within 48 hours of receiving the fax.
- An appraisal is also ordered within 48 hours of receiving the faxed offer.
- The appraisal vendor contacts the customer and/or the agent to schedule the appraisal within 5 days of the offer.
Additional borrower information may be required
- An explanation of hardship
- Most recent month’s income verification or last three months of profit and loss statements for self employed
- Most recent month’s bank statement
- Most recent year’s income tax return
Countrywide’s analysis of a potential short sale will include the owner’s ability to participate in the loss, the purchase price, the current value of the home obtained by Countrywide, and the short sale loss as compared to foreclosure/REO loss.
Share ThisPosted by scott on June 1st, 2008 in Real Estate |
June 3rd, 2008 at 6:51 am
I have noticed the short sale process has become much easier. I have to comment on Countrywide though. They are one of the most difficult lenders to deal with. I have discounted many loans and they are very behind in their processing. EMC is my favorite.
Jonathan Christopher of Short Sale Way
July 17th, 2008 at 6:39 pm
Hi- if a home is already on the market as a short sale, can an interested buyer assume that the above process has taken place (i.e. the purchase contrarct and preliminary HUD 1?). I submitted an offer on 5/21 on a Countrywide house and haven’t heard a thing. Thanks..
July 18th, 2008 at 8:13 pm
Sorry it has taken so long to respond, but I am in San Diego for the week. Anyway, I feel your pain. I have a Purchase Contract out right now and it took 1.5 months to get a response and the bank (Countrywide) still hasn’t given us a final decision and it is going on two months. Countrywide is notoriously bad about making decisions.
When you right up a contract on a property that is being sold as a short-sale, the lender will review it, contact the escrow company you are looking to use to get an estimated HUD-1 statement (cost sheet). Once they do that then a negotiator will be assigned. They may come back to negotiate the contract, once you come to an agreement with the negotiator it typically goes to a review committee for final approval. All of this takes a long time and with the growing backlog of foreclosures and short-sales on the mainland, it is backing everything up.
Your Realtor should be able to provide you with updates. For me, I contact the seller’s agent every few days and ask for a status update. The lender can usually give an update of where things stand. Is it with the negotiator? Is it waiting for approval? etc.