Short Sale Process
January 25, 2010 by admin · Leave a Comment
Short sales are a completely different animal than a typical real estate sale. The following is the general process of a short sale transaction, which will take anywhere from 3 months to as long as a year or more depending on the mortgage servicer(s) & investor(s) that have to approve the sale. This overview is meant to make the borrower familiar with the short sale process. It should not be construed to be anything other than an extremely basic, general overview.
1. Broker Price Opinion (BPO)
Short sales are only an option when the borrower is “upside down” on their home – in other words, you owe more on your loan than your property is worth. The only way to determine this is by having an experienced broker complete a “Broker Price Opinion” or “BPO” on your property. This is exact same way your lender(s) will value your property – they will hire real estate brokers to do BPO’s of your property in the short sale.
2. Submitting a Letter of Authorization, complete Short Sale Package and Offer to Purchase
Lenders will not begin the process of a short sale without a Letter of Authorization, which authorizes your real estate broker to speak with the bank regarding your loan and short sale, a complete Short Sale Package, which typically consists of 2 months of bank statements, 2 years of tax returns, and a hardship letter, and finally, an offer from a buyer to purchase your property.
3. Writing your Hardship Letter for a Short Sale
The hardship letter should articulate why you need to do a short sale – basically that you are upside down, cannot afford to make the payments, and need to sell the property in a short sale. There are many do’s and dont’s with regard to a hardship letter. Ask your agent’s advice and never send your hardship letter or any other information directly to the bank. Instead send it to your broker, and then have them look it over, approve it, and send it to your lender on your behalf.
4. Negotiating with the Bank(s)
Negotiating a short sale with the Loss Mitigation Dept at the bank is a long, arduous, complicated and extremely frustrating process and is not for the inexperienced or faint of heart. This is where your agent earns his or her commission. Their job is to get your lenders to agree to the short sale, and if your loans are recourse loans, to settle the debt and agree not to pursue a deficiency. If your loans are non-recourse loans, then a lien release is sufficient. Note: Purchase money loans are non-recourse in California, however once you refinance, regardless of whether you pulled out cash or not, your loans become recourse loans.
