Pinetop White Mountain Blog

Good Afternoon Everyone,

Today I am going to try to "nutshell" the Short Sale Process.  To start with you need to understand that the "Short" in "Short Sale" is a misnomer.  The "Short" references the fact that the property is being sold for less than the existing mortgage against the property.  It does not reference the time frame involved in the process.  It would be more aptly named the "Long Sale" Process.

Many buyers and sellers don't understand the Short Sale Process at all.  Unlike the Foreclosures or REO's as they are referred to in the industry, in a Short Sale the Seller/Owner of the property is in the drivers seat.  They have made a conscious decision to "try" and sell the property for less than is owed against it.  Unlike an REO any offers to purchase are submitted directly to the Seller and they decide if they want to accept, counter, or reject the offer.  The Bank does not become involved until the Owner accepts the offer.

Once the offer is accepted the Owner along with the Listing Agent will prepare a package to send to the Owner's Lender along with the offer.  Contained in the package should be the Owner's Hardship situation stating why they can't pay the mortgage the way it is or why the bank should consider the Short Sale Offer, a list of comparative properties showing the values in the area and how the new offer compares to them, and an estimated closing statement from a Title Company. There may be other items included too but that depends on the Bank they are dealing with exactly what that package contains.  Included should also be a letter of permission for the Listing Agent to talk directly to the Bank about the offer.

Once the Package and the offer have been submitted to the Lender it will eventually be assigned to a Loss Mitigation Officer.  That officer is the first level of review that offer must get by before it will get to anyone who can make a decision about the offer.  Most lenders are now much better staffed to get this initial evaluation done but if there is something missing from the package or the Officer wants more information from the Owner, this level could take quite a while to get through.  This Officer may also choose to sit on the offer for a while to see if other, more appealing offers for the same property come in. 

The fact that your offer was the first offer does not necessarily preclude other potential Buyers from submitting offers because until an offer is accepted, the Owner can continue to solicit other offers from other Buyers.  Occasionally the Buyer will ask in the offer that their offer is the only one to be considered and they will go ahead and open escrow as a sign of good faith.  This is rarely the case however, most escrows are not opened until the Bank has accepted the offer. 

Once the offer gets through that first level of evaluation it is kicked upstairs so to speak to another level.  Hopefully at this level the Bank will start working on getting the investors who originally backed that loan together to determine if it is going to work for them.  Again, this could take a long time to do because those investors may be scattered around the world.  This level is probably the most conducive to the delay involved in the Short Sale Transaction.

Once everyone has had a chance to review the offer, the Bank may Counter the Offer, reject the offer, or accept the offer.  It all depends on how strong that offer is.

A hint here, no matter what the list price is on a Short Sale, make sure you have your agent check comps to be sure you are making a fair market offer for the property.  By that I mean in line with the comparables in the area.  Do not think that because a listing has a real low price on it that the Bank has approved that price.  It is likely only a starting bid price just to get that property on the market and generate multiple offers for the property.  The final selling price is likely to be higher than the listed price and more in line with comparable properties in the area.

All in all while this process is complicated Short Sales can be a good deal for you if you have the patience it takes to wait out the process.  Some will go quickly, others may drag on interminably.  It just depends on the Bank you are dealing with and how organized they are in dealing with Short Sales.  There are no guarantees in a Short Sale.  You just need to know that going in.  First in line does not mean first in consideration.  You could think you have a very strong offer on the table and while you were waiting for an answer two more that were stronger may have come in.  It is a gamble to an extent but most of the gamble is with your time.  If you have the patience to wait it out and are prepared to jump through whatever hoops are put in front of you, you could come out with a great deal on a property.  If you need a place to live now though, this may not be a good option for you.

Talk to your agent and let them guide you through the process.  This summary is very brief and touches only on the main parts of the process.  It might help explain though what a "Short Sale" is and how the process works.  It may give you a better understanding on what to expect and whether this is the type of transaction you want to be involved in. 

Thanks for reading.  If you have other questions please feel free to contact me.  Until next time.....

Sandra Paulow, Associate Broker, GRI, SFR  (928) 242-0300