Short Sale Process

Well you’ve found your “short sale” property … now what happens?

· When you write your offer, your agent should insert language into the contract that states the contract is “Contingent on seller’s mortgage holders’ approval”. You may also be asked to sign an addendum stipulating how many days the short sale lender has to approve your offer, after the seller signs and submits it. Don’t be mislead into thinking a shorter time period will speed up the process, it won’t. You are at the mercy of the sellers lender relative to time frames.

· Often, lenders require Short Sale properties to be sold in “as is” condition, thus not threaten a potential closing with repair items. Language should be inserted into the offer in that regard, either with appropriate addendum (under “additional terms”); or, by using an “As Is” Sales Contract.

· The Seller may counter your offer. Remember, the contract is between you and the Seller, not you and the Seller’s lender. The Seller does not want to submit an offer to the bank knowing it will likely be rejected and/or counter-offered because it is too low or has too many closing costs on the Seller’s side. The lender will always analyze its “net”. In a short sale case, it will always be a “loss”, so the lender wants to mitigate the loss as much as possible.

· After the contract is signed and agreed to by both you and the Seller, it will be sent to the Seller’s lender, or lenders if there is more than one mortgage holder. Documentation submitted with the contract includes an estimated net sheet, the Buyer’s approval or proof of funds letter, the listing agreement, Seller’s financial worksheet, recent pay stub, recent bank statement, last year’s tax returns and hardship letter.

· The Seller’s lender will then order an independent appraisal and/or Broker Price Opinion of the subject property.

· The Seller’ lender may counteroffer your offer with the appraised value or close to it, if your offer and the net to the lender is too low.

· You will accept or counteroffer this amount. The lender makes it decision based on the net requirements of the end-investor on the mortgage regarding price. For example, even though the “lender” may be Wells Fargo, the actual investor reaping interest may be the Bank of New York or Merrill Lynch. There may also be PMI or private mortgage insurance on the loan. In that case, the PMI company will also order a separate appraisal or BPO. Your offer must satisfy both lender’s requirements. If there is a second mortgage on the property, the first mortgage holder will offer the second mortgage holder a dollar amount as a “buy out”. Additionally, the lender(s) may ask the Seller for a cash contribution or promissory note. If the Seller cannot comply, you may be asked for additional monies to make up some of the difference. If the property is a good deal, you may wish to do so.

· The timeline for initial response from the lender may be up to 12 – 16 weeks. This is due to lenders having an overwhelming number Short Sales in the pipeline at any one time.

· After final approval by the lender, a “demand” or “approval” letter is sent out to the Seller. The letter will normally stipulate that closing must occur by the date stated in the contract, or there will be a per diem penalty for not closing on time. Thus, you are expected to have your mortgage, insurance and inspections completed in a timely manner. The per diem penalty is quite common with corporate contracts.

· The lender will expect to see a copy of the settlement statement at least two days prior to closing to ensure it is accurate, and matches what was stated in the net sheet that was submitted with the offer and on the approval letter.

Now you can close, sit back and enjoy your property!