First: Short Sales Are Complex
A short sale is when the sale of real estate results in proceeds that “fall short” of the balance owed on the note and deed of trust. There are key terms to understand before heading into a short sale, such as:
- The note holder or “lender” has been granted a secured interest in the property through the deed of trust. The primary lenders in the market are Fannie Mae, Freddie Mac, FHA, USDA, and *VA.
- The deed of trust is recorded with the register of deeds in the county in which the secured property is situated.
- The loan is serviced by a bank or a loan servicing company (loan servicer).
- The lender and the loan servicer can be the same entity but are usually separate.
The negotiation of the short sale is the process in which the seller, usually through his real estate agent or attorney, negotiates a release of the secured interest in the property in order to allow the property to be sold to a third-party buyer at a price that results in a net payoff that is less than what is owed. The lender or loan servicer determines the market value of the property or expected selling price from an appraisal or broker price opinion (BPO).
The short sale requires the cooperation of all owners named on the deed and is negotiated on behalf of all the parties named on the deed of trust. Other vital aspects of successful negotiations include:
- Disclosure and release of all liens on the property prior to closing.
- Disclosure of homeowners association (HOA) information, including unpaid dues and assessments. Banks rarely agree to pay past-due homeowner association amounts, so it is the responsibility of the homeowner to pay or settle the amount at or prior to closing.
The short sale agreement may or may not release the borrower from the obligation to pay the remaining balance of the loan, known as the “deficiency.” Read more about the lender’s options for handling the deficiency on our Short Sale FAQ page.
* VA is not an actual lender but rather a loan guarantor, but in short sales they function in the same manner as lenders.
Second: Lenders Are Generally Receptive To Short Sale Offers
Lenders are usually receptive to short sale offers. The lenders know from experience that a “market price” short sale offer will save them the time and expense of a foreclosure proceeding. The time, trouble and expense of taking title to the property after foreclosure and selling it through their REO (real estate owned) department often result in a profit of 15% to 20% more than if it goes through foreclosure.
Note: We have recently been through a two-year period where the lenders and loan servicers across the board strongly preferred foreclosure. This made short sales much more challenging and thus making it even more important to have an experienced guide take the offer through the short sale maze to approval and closing. As the market contends with and emerges from the effects of COVID-19, it is unclear whether the lenders and loan servicers will prefer short sales or foreclosures.
Third: It Is Critical To Have All Documents Ready For The Lender Review When An Offer Comes In
The short sale package is fairly standard throughout the industry, but some banks will have additional documents for the parties to sign. The short sale package will normally include:
- Two years of tax returns (federal and state)
- Bank statements for the past two months
- Pay stubs for the past two months
- A financial statement
- A letter explaining the seller’s the involuntary hardship(s)
Sending in a complete short sale package for review to the lender the first time makes a big difference in expediting the short sale timeline. Missing documents will slow the process down because in most instances the review will not proceed unless the lender’s loss mitigation department receives all required documents.
Since the foreclosure process may not stop while a short sale is under review, it is vital to submit the short sale package before any pending foreclosure hearing date.
Fourth: The Short Sale Review Process Takes Time
Each case is different. There is no definite timeline for completion of the short sale review process. Typically, with Wilde Law Firm the period from submittal of the short sale package to lender approval is usually is 45 – 90 days. Some lenders will take less time, and some lenders will take longer.
Working with an experienced short sale attorney at Wilde Law Firm will reduce the time it takes to close on a short sale property once it goes under contract. With over 10 years of short sale experience, we understand what lenders need and can therefore package and deliver the information in a streamlined fashion, facilitating a shorter review process and closing time. Our experience and knowledge of the short sale process ensures the fastest review possible. This is to your advantage since lenders generally prefer to work with an experienced specialist.
Fifth: Delaying Foreclosure Actions Before The Foreclosure Sale Date May Be Possible
In our experience, the fastest way to the courthouse steps is to call the lender or loan servicer and do exactly what they say. Expressing a desire to do a short sale will not delay the foreclosure. It is imperative for the seller to understand where they are in the foreclosure process if they wish to stop or delay the process. We may be able to advise or assist the seller in delaying foreclosure to provide all parties the opportunity to obtain a short sale on the property.
Take Five And Contact Us Now
We help individuals and real estate agents negotiate short sales. An agent who attempts to negotiate a short sale is assuming a considerable amount of risk and liability. With potentially tens of thousands of dollars in tax consequences or hundreds of thousands of dollars’ worth of deficiency responsibility for the seller at stake, the agent could become liable for costs related to any items handled incorrectly.
Speak with an experienced short sale lawyer at Wilde Law Firm today. We give careful attention necessary to each file to guide a short sale to successful completion. Call us at 828-254-6061 or reach out online.