Before you can begin to understand the short sale process, you have to understand what a short sale is and why lenders do them.
A short sale is when a lender agrees to sell a home for less than what is owed by the home owner. If a home owner is experiencing financial hardships and has defaulted on the mortgage, lenders take short sale into consideration.
If the mortgagee owes more on the house than what the property is worth, a short sale is likely to take place, because the lien holder is trying to recoup as much from the loss as possible.
Now that you have an understanding of what a short sale is, we can move on to the actual short sale process.
The first step in the short sale process is putting together a package for the lien holder that provides affirmation of why you're requesting a short sale.
Some of the common features of the short sale process are:
These things are important because if a lien holder decides that you are financially able to afford to pay your mortgage, they will not agree to a short sale.
Once the house is listed up for sale as a short sale, the next step is for a buyer to see the listing and put in an offer. Generally the price offered will be below market value due to the fact they know the lien holder is trying to get rid of the property quick to speed up the process.
If the offer is accepted, the buyer will have to provide the lien holder with some information. This information differs depending on the bank but it typically includes a purchase offer, listing agreement, and the buyer's preapproval letter.
In this step, make sure you supply the lien holder with any information they need, to avoid delaying the process.
At this point the buyer is dealing directly with the lien holder (the bank). So they may have to wait a while before they hear back from the bank. You have to wait for short sale approval which can take a while
It doesn't hurt to check back on the status of the short sale with the bank from time to time. While waiting, the buyer has to be extremely patient. You have to remember that the bank has a process that they go through for short sales.
This usually includes assigning a negotiator to the case, the property is evaluated by a third party chosen by the bank, and then all parties sign an Arms Length Affidavit. The Arms Length Affidavit is mainly important for the bank. Banks include this to avoid relatives of the ex-home owner of buying the home to get receive a better priced home.
The Arms Length Affidavit essentially puts everything out in the open. It makes sure that no side deals are taking place, and no shady practices are involved in the short sale process. Violating an Arms Length Affidavit is mortgage fraud and can result in serious legal action.
The short sale process is usually very long and requires a lot of patience, especially for the buyer. The end result for the buyer is usually a reasonably priced home.
The original home owner's credit will ultimately be negatively affected, and the lien holder will usually take a loss if due to the property selling for less than what was originally owed. But overall, the short sale process provides a solution to a difficult problem and is seen as a better alternative than foreclosure.