A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on the loan secured by the property. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor (home owner).

There are two ways to process a short sale transaction. Ideally the listing agent should establish communication with the loss mitigation department up front and approve the list price/sales price based on a comparative and competitive market analysis.

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The lien holder will require financials from the homeowner along with a reason as to why the homeowner can no longer afford the home (hardship letter). If this process is done up front, a short sale can take as little as 30 to 45 days (graph #1). If this process is initiated after an offer is received it could take considerably longer – 60 to 90 days (graph #2).

Timing

• If the short sale is approved by the lien holder(s) up front, the process can take 30 to 45+ Days. If the process is NOT approved up front by the lien holder(s) the process can take 60 to 90+ days. If you have a specific move in date that you are targeting, keep this in mind. The bank will NOT take the buyers timeline requirements into consideration and it’s nearly impossible to convince them that they should approve the short sale and/or move any faster.
• If you have an interest rate locked in, make sure you contact your lender to see how a prolonged closing (60 to 90+ days) will affect your interest rate lock. The seller/lien holder involved in the short sale will NOT buy down your rate or extend your interest rate lock if your lock expires due to their lack of communication and response.

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Communication

• Most banks involved in a short sale transaction are not located in Austin and all negotiations are done through the bank's loss mitigation or workout department. Some of these departments are working on hundreds if not thousands of files. There is a chance that once we submit an offer, we might not hear anything back for weeks.
• A bank might not respond with a counter offer until they order a BPO (Broker Price Opinion) and that can take 20 business days to order, review, and approve the offer.
• As a buyer’s agent, I do not have authorization to contact the bank directly to discuss the seller’s loan modification/short sale. The listing agent, title company, and/or seller is the only one authorized to contact the bank directly.
• My ability to provide updated information on what is occurring is 100% based on the ability and willingness of the listing agent and title company to work with the seller and lender(s).
• The employee turnover rate in the loss mitigation and workout department is very high so it’s common for:
  • Files to go missing after we received verbal or written approval and therefore the bank might require the seller to provide all the necessary paperwork "again" in order to process the short sale. They might have to order a new BPO which will add 15 to 20 business days to the approval process.
  • Certain banks have a central call center that handles/manages all calls to the bank. The listing agent, seller, or title company might be on hold for upwards of 45 minutes each time when attempting to contact the lien holder and once the call goes through, there is no guarantee that they will be talking to someone who can do anything about the file or provide any updated information.

Dealing with multiple lien holders.

• If the loan was an 80/20 loan (80 % first lien, 20% second lien) the short sale process must be approved by both banks and they might not be the same bank. If the second lien holder is not making any money from the short sale, they might not approve the process and might not respond to any communication related to the short sale request/process. Example:
  • $200,000 home purchased in 2003
  • 160,000 1^st loan (80%)
  • $40,000 2^nd loan (20%)
    • Homeowner fell behind for 6 months and did not pay the $5,000 tax bill for the previous year. The homeowner incurred $20,000 of late charges including the tax bill, legal fees, lat payments, etc.
    • The home can only be sold for $170,000 because of the condition of the house and available comps
  • After paying title insurance, closing costs, and all fees associated with selling the home ($13,600) the amount left over is $156,400. The 1st lien holder is willing to proceed with approving the short sale because they will receive most of their investment back but because the 2nd lien holder is in a “junior lien” position, they will not receive anything from the short sale.
  • There is no incentive for them to allocate man-hours approving the process – they would rather let the property go into for foreclosure. It’s a loss/loss for them anyway and we might not be told about this until the title company creates and delivers a HUD-1 Preliminary Settlement Statement (30 to 60 days into the process).

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Turning on Utilities

• Inspection: Even though Section 7 A of the contract states that “Seller at Seller’s expense shall turn on existing utilities for inspections” it is common that a vacant home will have utilities turned off.
• The seller might not turn on the utilities because they might have an unpaid balance with the utility company. The bank will NOT turn on the utility for the buyer’s inspection. If the buyer wants to have an inspection the buyer will be responsible for turning on the utilities and will have to pay for all set up fees associated with turning it on.

Inspection & Appraisal Cost

• If the bank initially approves the short sale process we will have to order the inspection (home and termite) and your lender will order the appraisal and survey (if existing survey is not available). This will be an upfront cost to you.
  • Home Inspection: $275 to $350
  • Termite Inspection: $70 to $90
  • Appraisal: $450 to $550
  • Survey: $450 to $550
  • Total : $1245 to $1540
    • If the bank rejects the sale or if the property does not appraise and the lien holder(s) refuse to renegotiate the price on Section 3C of the contract (purchase price) you will NOT get reimbursed for the above expenses.

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Additional Items

• Home is offered “as is” with no warranties. Lender might not agree to pay for a home warranty policy. Lender might not agree to pay for a survey and will not provide an affidavit for the survey. Lender may or may not pay any buyers closing cost or assistance programs.
• I have also come across instances where the bank agreed to an offer price in writing and one day before closing they said that unless the buyer increased the offer price they would terminate the contract. The buyer had to increase the offer price by approximatetely $2,000. He had already given notice to his apartment and could not start the home buying process from scratch.
• One thing you should know about a short sale is that there is no necessary commitment by the bank to sell the house. A short sale contract includes a contingency where the bank must approve the sale.
• Even if the offer to purchase a short sale Austin Home is a full price offer, the bank might NOT approve the short sale even after months of negotiation. In this situation the bank has tied up several months of your time and now you must start the buying process over again.