Short Sale Timeline
A Short Sale occurs when the seller owes more to the bank than they will receive from the sale of the property. The Seller will not receive any funds from the sale. The bank that is the current mortgage holder must approve the sale and on THEIR terms. Our Short Sale Purchase Contract will be discarded if they accept your offer. It will be replaced with their contract and addendums that only protect the bank. That banks will choose the title policy they offer and the escrow office that will handle the sale. We see sales in Arizona closing escrow in Texas. Can you imagine that?
In order for a short sale to be accepted by the bank, the Seller must have a real hardship such as a job loss, death in the family, or divorce. They must fill out financial documents more extensive then if they were buying a home and taking out a loan. They must have no assets to use to pay the bank for the shortage. They may be required to liquidate any assets of value and pay the proceeds to the bank. They may also be required to sign a promissory note to pay back some or all of the shortage. Under these conditions many Sellers find it difficult to deal with all the paperwork that is required and they either don’t send it in or are just not able to complete it. They stop caring for their home and hold off making any repairs and doing any maintenance. We have seen landscape die because of lack of watering, dishwashers inoperable at close, ruined carpeting, even missing appliances and cabinets.
If you are a Buyer you must be prepared for a long wait to even get an answer from the Sellers. And when the Seller accepts your offer it is subject to their bank’s approval of the sale at the price offered and with a substantial loss. You must be prepared for the bank to reject your offer or come back with a price even higher than the asking price. This could be 4 or more months after your offer was accepted by the Sellers. You must be prepared to have your dreams stolen from you. You must be prepared to close the sale if and when the bank says you will. The banks will not respond to our inquiries. They totally disregard your wishes, and in many cases they disregard the law and common decency. Often the person we were dealing with is no longer at the bank or transferred to a different department during all this negotiation.
As soon as ALL of the paperwork required from the Seller is gathered it will be submitted to lender immediately — they will typically acknowledge receipt in 4-6 weeks. If the paperwork is incomplete or they forgot to send you a form, it starts all over again. In another 4-6 weeks after that they’ll order an appraisal — they will typically acknowledge receipt of the appraisal in another 4-6 weeks after that. The appraisal may be totally off from the amount they priced the home at. The initial price is set by the bank paying a minuscule amount to a real estate agent to give them their opinion of value. That agent could be from over 100 miles away and not familiar with the local market. Within 4-6 weeks of acknowledging the appraisal they will begin negotiating — they will typically come to the table with their final offer in 4-6 weeks after that. Once we have the final offer, the closing will take place in 4-6 weeks:
= 24-36 weeks (6-9 months) at best
There is a possibility that even with an approval in 6-9 months they will reject the sale at the last minute. They often LOSE the paperwork repeatedly. This often occurs because of the high percentage of turnarounds of employees at the lender’s short sale department.
If the bank asks for additional documentation from you/your wife, or the Sellers, you will need to respond and provide the documentation– the quicker you can get it to them the better.
Typically the collections department has no clue that the negotiations are in process with the short sale department and they may continue to call the seller weekly. When the Sellers tell them that a short sale is being negotiated they will say that they have no record of a short sale negotiation and the Seller should send them the paperwork. They will be telling you the truth — the collections department will have no clue that a short sale negotiation is in process and no matter how many times you tell them they will not put it into their system and they will continue to act as if nothing is in process — the bank departments rarely talk to each other. This is typical. The departments are likely in different states. They do not have a clue what another department is doing.
Do not expect to hear anything for 2-3 months at a time because there will be absolutely nothing to report for 2-3 months at a time — the banks are that slow.
Basically, sit back, and in 6-9 months from now or more we’ll know if the bank is willing to do the short sale. Sickening, maddening, and crazy I know, but that’s the way these banks operate. I’m prepared to close on these deals in 2-weeks, but the banks keep the process to a crawl. For your own sanity, just put it out of your mind and rest assured we’re working on it. If anything important happens we’ll let you know. Nothing important will happen for months.
Most of all your need to be prepared for your offer to fail. Even if the bank accepts your offer, there is a high probability that the Seller will have stopped making payments and the bank will foreclose before the short sale is completed. The process then starts all over with a new price, a new listing when the bank decides to release the property for sale, a property that has been neglected or purposely damaged by the Seller, and a new asset manager for the property.
One of the main reasons that the banks will reject your offer is that in a Short Sale the bank VOLUNTARILY accepts the loss. If they wait and foreclose their loss is INVOLUNTARY. In an involuntary loss they then can go to the government and receive the loss difference because of the government loan guarantee.
Short Sales lead to heartbreak. They are not for the average buyer. You may have a difficult time obtaining your own loan. The seller’s bank will not accept a sale contingent upon you selling your home. So, sell before you buy. You will need a plan “B” in case the close is delayed by the Seller’s lender reviewing the file one last time.
Unless you are willing to go through all this and still have your home purchase fall apart at the last minute, you should be looking at homes that are traditional sales or have already been foreclosed. They are the best homes with the sellers motivated and in control of the sale.