A short sale is when a seller’s lender is agreeing to accept an offer for less than they currently owe on the property. Many times the borrower has defaulted on their mortgage and it is in a delinquent status, but a short sale does not have to be in default for the bank to look at taking a lower offer than what the sellers owe for the house.
One main thing to know about a short sale is that is by no means going to be a short time frame for the lender to respond. Often once an offer is submitted to the bank, it will be anywhere from 30-45 for the bank to even respond to the offer. Buyers and seller alike must be very patient with the process.
Just because a property is listed with short sale does not mean the lender will accept the buyer’s offer even if the seller accepts it. Lenders will likely not agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender.
Examples of hardships include divorce, job loss, etc. Once the hardship letter and supporting documentation have been provided to the bank (ie. Bank statements, pay stubs, and other relevant financial information) the bank will then hire a third party to determine a value on the home.
This can be an agent hired by the bank to do a BPO (broker price opinion) or in some cases the bank will hire a certified appraiser to value the property. Once the bank has that number, they will take the offer, supporting documents and BPO to the investor who backs the loan for their approval.
Then after they determine what they will take and both buyer and seller agree on the price, the bank will issue a formal approval letter needed to close out the loan.
So, what is the benefit for the parties involved in a short sale? The short sale may have a less damaging effect to the seller’s credit than a foreclosure. For the buyer there is a possibility of purchasing the home for less than market value, if they buyer has the patience to wait for the process. Our average short sales take about 4 months to complete.
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Listing courtesy of ERA Freeman & Associates.
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