Last week my article was titled and in that article I said that I would tell you what a seller would need to provide the bank in a standard short sale package. Keep in mind, the bank wants to make sure that they are getting close to fair market value for the home. If an offer is far lower than they believe the value to be, the bank may just consider a foreclosure and then attempt to sell it closer to the market value amount. The banks also likes to know that there is some hardship involved. Examples of a hardship could be a loss of job, a reduction in income, a divorce or high medical bills. More than likely the bank is not going to be willing to take a loss if the seller has the ability to pay the difference.
With that being said, here are the items needed to get a short sale package started. The first four items deal with the transaction in terms of the listing and the purchase and sale.
1. Listing agreement and MLS printout
2. Sales contract with all exhibits and addendums
3. Buyers pre-approval letter or proof of funds
4. HOA information, (if applicable)
5. Affidavit of Arm’s Length Transaction, completed and signed, to make sure that the buyer is not in any way related to the seller.
Then the Seller must also provide personal information that could include:
6. Third Party Authorization Form – This allows the realtor or the closing attorney to discuss the short sale on the seller’s behalf
7. Hardship letter – Explains the circumstances that created the need to sell the property
8. Hardship documentation such as Divorce Decree or Bankruptcy Documents
9. Financial worksheet (Each lender could require their specific document)
10. Two years tax returns and all schedules and W-2’s
11. Two months bank statements
12. Two most recent pay stubs
13. If self-employed – profit and loss statement
14. Copy of your Monthly Mortgage Statement/Payment Letter
15. Clear copy of all sellers’ drivers licenses
16. Any default or foreclosure documents/letters from lender or lender’s attorney
17. IRS 4506T-EZ, completed and signed
18. Any additional lender specific forms – Varies lender to lender.
After all of the documents are sent to the lender, a negotiator will be assigned to the file. At some point, the lender will do an internal market analysis called a BPO (Broker’s Price Opinion). This BPO sets the fair market value from the lender’s perspective. The BPO is not always accurate and can be challenged. Overcoming an inaccurate BPO can be challenging and results can vary. The entire short sale process could take 60-90 days or longer. Once the lender(s) approve the short sale, the buyer will then need another 30-45 days to go through the loan process.
It is critical that both real estate agents be familiar with short sales. Both agents will need to communicate to their clients the status and process. Sixty to ninety days is a long time for a buyer to wait. Only the realtors that have the right expectations up front can succeed in getting the deal done and to the closing table.