Banks grant short sales for two reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth
The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines, but the basic procedure is similar from bank to bank.
A few examples of a hardship are:
- Unemployment / reduced income
- Divorce
- Medical emergency
- Job transfer out of town
- Bankruptcy
- Death
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
- Comparative market analysis or list of recent comparable sales
Writing the Short Sale Offer and Submitting to the Bank
Before a buyer writes a short sale offer, a buyer should ask his or her agent for a list of comparable sales.
Banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to market value.
The short sale price may have little bearing on market value and may, in fact, be priced below the comparable sales to encourage multiple offers.
After the seller accepts the offer, the listing agent will send the following items to the bank:
- Listing agreement
- Executed purchase offer
- Buyer’s pre-approval or proof of funds letter and copy of earnest money check
- Seller’s short sale package.
The Short Sale Process at the Bank
Buyers may wait a very long time to get a response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process.
Buyers may get so tired of waiting for short sale approval that they may feel the need to threaten to cancel if they don’t get an answer within a specified time period.
That type of attitude is self-defeating and will not speed up the short sale process. If buyers are the type with little patience, perhaps a short sale is not for them.
Following is a typical short sale process at the bank:
- Bank acknowledges receipt of the file.
- A negotiator is assigned.
- The bank orders a valuation of the property.
- The file is sent for review or to the investor.
- The bank may then request that all parties sign an Arms-Length Affidavit.
- The bank issues a short sale approval letter.
Some short sales get approval in 3 weeks. Others can take as long as 12 months. A typical Short Sale transaction takes 4-6 months to complete.