The Process

While no two short sales will be exactly the same, the short sale process will have a similar timeline with most lenders. Our process has proven to increase short sale success significantly over the national average. We have successfully completed numerous short sales for our clients and are familiar with what each lender requires and what steps should be taken first with each lender. Often, we have established connections and their contact information on managerial level as we had to escalate transactions in the past. Years of experience allows us to solve problems quickly and efficiently. Our goal is to make the process easy and simple for you during this difficult time.

The first thing you’ll need to do is sign a letter of authorization. This informs the mortgage lender that we, your real estate agent and our title company, have your permission to speak and negotiate on your behalf. The document will need to include information like your name, our names, property’s address, the loan reference number, and the date. We will help you prepare the document and then submit it for you once you’ve signed it.

Once the letter of authorization has been submitted, we’ll contact the lender to inform them of your intentions and find out what they require to be submitted in the short sale package. We will determine if your loan was FHA or Conventional as the two differ dramatically. If you obtained an FHA loan, we can begin the short sale process approval with the lender immediately. If you bought your home via a conventional loan, the lender will typically require for us to market the home, find a buyer and sign a contract with a buyer and only then submit the full short sale package including the signed purchase agreement.

Regardless of the type of loan, we will sign a listing agreement for the house to be listed and marketed in the MLS and all major real estate websites. At this time we will also request for you to begin collecting necessary personal financial documents.

At our first meeting we will present and review a comparative market analysis (CMA) on your property to determine its approximate value based on location, condition of the house and any necessary repairs. A CMA bases the value of your home on similar homes that have recently been sold, are pending sale, or are currently on the market. If your home requires any ‘must-do’ repairs, this is an excellent time to collect contractor estimates – structural issues, leaking roof, water in the basement, broken furnace, etc. If a buyer cannot move into the property and live there due to a specific problem that problem will be a ‘must’ repair. In addition to giving you a starting point for your market listing price, revealing a decline in the market may improve your argument when trying to get approval for a short sale.

Once an approximate value has been established for your home, we will list it on the market as a potential short sale that is dependent on the lender’s approval. We will then strategically market the home to potential buyers that are pre-approved, understand the complexities of a short sale process such as a potential for the sale price to go up and buyers that are flexible with their timeline and agree to wait 60-90-120 or even 180 days for the short sale process. Once we receive the offers, we will review the offers and discuss your options throughout the marketing process.

Parallel to the first steps, we will order a title report on your property. The report will disclose how many liens currently exist on the property. If you only have a primary mortgage lender, for example, there will only be one lien on the home. If you have taken out a second mortgage, a home equity line of credit, or have incurred any other liens against the property, each will be shown on the report. The more liens that there are on the property, the more complicated the short sale becomes. In order for the title to be clear and the short sale to get approved, all of the lien holders must approve the deal and release their liens. If various lenders do have equity in the home, we’ll have to reach out to each of them to gain approval for the sale. Each lender may require their own hardship package and each lien holder has the right to deny the short sale. If you have more then one lien on the home, please prepare to be very patient; each lien can add 30 – 60 additional days to an already long and frustrating process.

All lenders will request that the homeowner submits various financial documents to them as part of the short sale package. The lender will want to review how dire the seller’s financial situation is and confirm that a short sale really is their only alternative to a foreclosure. Necessary documents include:

• W-2’s or 1099’s for the last 2 years
• Any other income such as child support or alimony
• Bank statements from the last 2 months
• Investment account statements from last 2 months
• Tax returns from the last 2 years
• Pay stubs from the last 30 days
• 401k balance or any other retirement accounts

It’s also best to be honest about any other existing assets such as stocks, bonds, cash in a safety deposit box, etc. Although you will have to gather this information on your own, we’ll handle submitting it to the lender as part of the short sale package.

A summary of all income streams and personal assets you have. We will provide you with a simple worksheet summarizing all income that you have coming in such as salary, investment income, rental income, child support, alimony or self employment income, etc.

Summary of any assets; personal bank accounts as well as any investment accounts. Checking, savings, investment accounts, etc.

Although not required, a brief summary of your required monthly expenses. The expenses are only submitted if they illustrate the dire hardship you are experiencing. Typically the list will include mortgage, car payment and insurance, basic cell phone and basic food budget.

The hardship letter is your personal statement to the lender of how you ended up in this financial situation. This is your chance to appeal to the lender as a person, rather than just numbers on a piece of paper. Don’t be afraid to be emotional in the letter. The lenders employees are human too and can understand that life can knock you down sometimes. Explain how you have lost your job, taken a pay cut, or incurred serious medical bills. Whatever your situation may be, the lenders will want to know what change in your circumstances has made you unable to fulfill your debt obligation. If you are having a hard time composing a letter, please let us know; we are here to help and we can put together a draft for you to edit. Please click here to read about how to compose an effective hardship letter.

Although requesting and negotiating for relocation money is not a step in itself, we feel it is an important point to discuss and deserves a few sentences. Every single owner-occupied short sale we negotiate, we request the lender to contribute at least $3,000 towards your relocation money. ‘Relocation Money’ is used for your moving expenses or rental deposits for your future residence and is provided at closing of the short sale transaction. Although it does not get approved in every short sale, if it does, the lender will provide the relocation money with several requirements:

• You must move out upon completion of transaction.
• You cannot rent the property out or retain possession of the short sale house.

Did you know that some real estate agents simply do not know this type of assistance is available… And if they have heard of it, they do not know how to correctly ask for this money. Many of our sellers get tears in their eyes when they receive this cash at closing. Most of the sellers are in a true hardship and this Relocation Money comes as a welcome relief taking a major burden off of their shoulders. We welcome you to call us to discuss what we can do for you and to encourage you to align yourself with an experienced real estate agent who knows what they are doing.

Once a buyer has been found and terms and conditions have been worked out between you and the buyer, we will sign a purchase contract, putting the house ‘under contract’. We will ensure the buyer is truly qualified for financing and understands that the agreed-upon purchase price must be approved by your lender. We will also make sure buyer is aware that they may have to wait 60-90-120 or even 180 days for the lender to process the file and approve the short sale. We will prepare a special addendum requiring the buyer to deposit a certain amount into an escrow account ensuring the buyer will not be free to walk away or change their mind mid-process. Negotiating a short sale is a long and tedious process and we want to make sure the buyer does not back out a few days before closing.

Once the details of the deal have been established, we’ll prepare a preliminary net sheet. This document outlines variables like the sale price of the home, the closing costs, all existing debt balances such as HOA fees or property taxes, outstanding fees, and realtor commissions for the lender so they have an idea of what they’ll receive in sale proceeds.

Once all of the requested documents have been gathered, we’ll submit them to the lender on your behalf. If there are several lenders that have equity in the home, we can organize individualized packages for each lender (depending on what each requests) and have them distributed accordingly.

Unfortunately, submitting the package isn’t the end of the process. It can take weeks or even months for the lender(s) to come to a decision. While it is impossible to provide an accurate answer as no two short sales are the same, even from the same lender, but generally, if you borrowed using an FHA loan, the short sale can take around 6 months to get approved from the time we submit a signed purchase agreement with the buyer. If you borrowed via a Conventional loan, plan for a timeline of 3 months after we find a buyer. It is very important to repeat again: We cannot estimate the length of the short sale process – please understand it fully depends on your individual situation and your lender.

The review process is lengthy and in depth, not to mention the fact that lenders are likely handling hundreds of these sales at a time. This means that it’s easy for your short sale to get put on the back burner while the lender focuses on other tasks. We’ll call the lender often to keep you updated on the sale’s progress and to ensure that the lenders are being timely in their review of your sale.
No two short sales are the same, and sometimes the same lender will have different timeline depending on type of loan, season, workload, which loss mitigation center is handling the file, number of liens on the property and sellers personal financial situation. We have had short sales that closed miraculously in less then 60 days after short sale package was submitted and we have had short sales that have taken over 180 days (6 monhts). A very, very rough timeline for the general process is as follows:

• 10 – 30 days for lender to acknowledge receipt of file
• Additional 30 -60 days for lender to assign negotiator
• Additional 30 – 90 days for negotiator to review the file and request any additional supportive documents*
  • Add another 10-30 days for lender to review each requested document and possibly request supplementary supportive documentation or written clarification/explanation
• Broker Price Opinion is ordered which can take another 30 days to get reviewed by negotiation
• If the BPO comes back higher then our purchase price we must re-negotiate with the buyer or find a new buyer
• Re-submit updated personal financials
• The file is sent to final review
• Bank issues short sale approval letter

*It is important to note, if the lender requests a document, it is of outmost importance to get requested document to the lender as soon as possible, preferably within 24-48 hours. Delay in getting documents or clarifications to the lender can easily delay the short sale by 30 or even 60 days.

You may be noticing that quite a few documents are required. Yes, our process is very thorough. We have done many, many short sales and we can confidently predict what the lender will ask for. In order to shorten the time it takes to get the sale approved, we put together a thorough package to begin with. This strategy saves us and the seller time and decreases delays with less requests for supporting documentation. We strive to provide the lender with every supporting document they may need to make their decision from the start. When your file finally gets the lender’s attention, we want to make sure everything is there and the lender can make as quick of a decision as possible.

Important Note: Even with a meticulously completed short sale package that includes all necessary documents a short sale can easily take over 120 days. An incomplete short sale package, multiple lienholders, inaccurate BPO (lender’s appraisal) or an initial short sale rejection can add months to the process. It is very important to establish the expectation that we do our best but whatever issues we may encounter may delay the file unexpectedly.

Once your short sale has been reviewed by the lender(s), it will either be approved, rejected, or a counteroffer will be made. In a perfect world, you’ll be approved on the spot and allowed to proceed. Unfortunately, counteroffers are very common, requiring renegotiation of the sale’s terms. We’ll handle the negotiations on your behalf to improve the sale’s likelihood success and to help you walk away in the best possible financial standing.

Some of the things we may need to re-negotiate:

• Purchase Price
• Lender’s contributions to buyers closing costs
• Inaccurate BPO coming in above buyer’s negotiated purchase price
• Lender wanting a monetary contribution from seller
• Relocation Money to be paid to seller at closing
• Your ability to qualify for the short sale, even if you have some savings or assets
• Lender declining the short sale, we appeal and begin process from beginning

The lender is under no obligation to agree to the short sale. If the lender thinks that they’ll gain more through a foreclosure than through the short sale, they won’t approve it. For that reason, it’s important that the short sale appears mutually beneficial to the lender. If it’s simply a bailout for you and doesn’t benefit them in any way, you’re unlikely to gain approval. Additionally, some properties aren’t even eligible for short sale depending on the mortgage loan’s terms or personal finances.

Although short sales are a great tool for improving your financial situation when facing foreclosure, they’re not a fix-all to your financial troubles. Even if your short sale is approved, you won’t necessarily be free of all debts. If the lender is unsatisfied with their payout from the short sale, they may seek further compensation. The lenders can seek the remaining mortgage debt, also referred to as a deficiency, through legal action after the short sale. We negotiate for the approval letter to include language that the lender will not legally pursue you for the deficiency. Alternatively, they may request a cash sum at closing or that the seller signs a long-term promissory note to repay a portion of the debt While this does not happen often, it can. Effective negotiation can sometimes completely erase any deficiency or reduce the outstanding debt owed, but there is no guarantee.

If some or all of the debt is forgiven, the forgiven debt may be taxed as income. Being taxed is unlikely if the home is your primary residence or you are able to prove that you are financially ‘insolvent’, but it is possible. Please speak with your tax attorney or a tax accountant to find out what liabilities, if any, you may be facing. Please ask your tax professional about Further Consolidated Appropriations Act of 2020, to determine if it applies to you.

It is shameful that we have to have a small section on ‘warnings’. Sadly, there are many organizations out there that are taking advantage of the consumers. Please interview several people and trust your gut. Nobody should ever be asking you for money upfront. Ever.

It is impossible to guarantee or make a promise in regards to a short sale. If someone is promising anything like a set length of the short sale process, or guaranteed relocation money, or zero tax implications or makes any other kind of definitive statements, do think twice about hiring such professional. There are absolutely NO guarantees when it comes to short sales.

You should be speaking to an individual agent that will be listing your home and who personally (or their team) will be negotiating your short sale. Third party organizations may re-sell your contact information for a profit to an inexperienced agent that may cost you time or worse, result in denial of your short sale.

Finally, choose an agent with experience that understands the process. There are many real estate agents out there that have the best intentions and are wonderful people but do not have experience with short sales. Short sales are completely different from regular sales. Short sales require knowledge, understanding and experience. Selecting an agent inexperienced in short sales may result in a lesser chance of short sale approval or worse, the house going into foreclosure. We have had sellers come to us after six months of trying with a ‘friend’ who was a realtor only to find out that we could not do anything for them because too much time has passed and the lender was not willing to allow more time.