Short Sale Frequently Asked Questions

What You Need to Know Before Making an Offer

What is a short sale? A short sale is when an offer is accepted on a property where the sale proceeds are less than the amount owed, inclusive of sale costs and other fees.

How does the short sale process work? The short sale process begins once a final purchase agreement is signed and agreed by all parties. It is then submitted, along with all of the required documentation from the seller, to the lien holder within 24 hours. Once the bank has received all necessary documentation…

• The bank will review the file to make sure it is within guidelines.
• They will then submit all information to a department that will negotiate the short sale. 
•  This department orders a “BPO” or Brokers Price Opinion to determine market value.
• The bank may also need to coordinate with the title companies, attorneys, mortgage insurance companies, public trustees, etc. for the approval of the short sale.
• When we get the written approval from the seller’s mortgage company(s), all parties are contacted.  
• A closing date will be scheduled and the escrow and due diligence process will begin.  At this point, you will schedule inspections, etc. just like a typical resale.

This process can take months, depending on the seller’s bank(s).  Short sales can be approved in as little as 45 days to more than 90 days.  Our job is to keep everyone informed.  We contact the listing agent weekly for updates.

How do I know the short sale will get approved?  You don’t.  We cannot make any promises to you that this will work.  We know that the bank wants to avoid foreclosing on homes; however, there are no guarantees that the sale will get approved in a timely manner.  If the bank does approve the sale, there may be a counter offer for you to accept.

Can I go ahead and move in if the house is vacant?  We don’t recommend vacating early since there is no guarantee that the short sale will be approved.

I have a friend who needs to do a short sale.  Can I buy his/her home?  Most banks do not allow friends or family of the seller to purchase the seller’s home.  The banks are concerned that friends and family will purchase through a short sale and sell the home back to the seller.  In fact, at closing, most banks require the buyer and seller to sign a document stating that you are not related nor an acquaintance. 

Will the seller or bank pay for repairs like in a typical sale?  Not usually.  Short sale homes are sold “as is”.  The seller is taking a loss on the home and has no additional funds to make repairs.  And, the Bank very rarely approves repairs.

Will the bank pay for closing costs?  We can always ask for closing costs.  We’ve seen some banks approve closing costs; some may reduce the amount and other banks counter with no closing costs.

Why would the lender accept a short sale?  Lenders do not want to have any more “bad debt” on the books.  Plus, foreclosures are expensive with legal fees and procedural duties.  A foreclosure could cost the bank an additional $40,000 to $50,000.

What are some reasons the short sale wouldn’t get approved?  Short sales are unlikely if the seller has experienced the following:

• If there is no hardship that has led to delinquency of the loan.  This needs to be documented, such as a job loss or significant decrease in income, divorce, relocation or illness.
• If the seller is current on loans with no plans of missing a payment.
•  If the seller is in Chapter 7 or Chapter 13 Bankruptcy or plans to file Bankruptcy.
• If the seller has completed a recent refinance with cash out and soon after decide to sell (Home Equity Line of Credit’s have the same effect)
• If the seller cannot provide a complete short sale package with documentation.
• If there are outstanding liens or judgments that cloud title from private parties.  Most lenders will not allow more than $1,000 - $2,500 to go to these junior lien holders.  This could include pool or landscaping contractors
• If the seller is less than 60 days from foreclosure sale.

 Will I receive a clear title?  Yes.  Even if the seller has not paid all of the liens on the property, the bank will pay them to ensure you have a clear title.

 Can I make an offer on a short sale and keep looking for another home?  When you make an offer on a home, you are committed to the home just as the seller is committed to sell the home to you.  If the process and approval appears to not be going anywhere, you can cancel the contract.  However, you must cancel before looking for another home.