The Real Estate Short-Sale Process

If you’re facing severe financial hardship and your home does not have enough equity in it to pay off the mortgage after the closing costs of the sale, your bank may grant you a short sale to allow you to transfer possession of your house quickly. However, despite the fact that short sales aren’t all that rare, many professionals both in lending and in real estate don’t know or understand how the process actually works. To help you understand what lies ahead, here is a brief glimpse at the short sale process.

Short Sale Basics

As a seller, if you face circumstances that qualify you as under financial hardship, your bank will grant you a short sale. First , you’ll need to prepare a short sale package. These packages will have different requirements from bank to bank, but most will need you to provide common documentation, including:

• A financial statement or RMA
• A hardship letter
• Tax returns (usually the last two years)
• W-2 forms (usually the last two years)
• Payroll stubs (usually about 30 days’ worth)
• Bank statements (usually the last two months)

Buyers must present a list of comparable recent sales when offering the short sale to their lender. This means houses in the same neighborhood of around the same size in order to give the lender an idea of how much a property is really worth, however this could be quite a bit higher than the actual sale price.

Once the offer is accepted, the buyer’s agent takes the listing agreement, the purchase offer, the buyer’s pre-approval letter, a copy of the earnest money check, proof of funds, and the seller’s short sale package to the bank.

At the Bank

Once the bank receives the short sale paperwork, the process can become frustrating, especially for buyers. The bank will usually take anywhere from a week to a month to acknowledge they’ve received the file and start their end of the process. From there, they will assign a negotiator, order a broker price opinion (similar to an appraisal, but less in-depth), and then send the file for review based on the pooling and servicing agreement (PSA). This process of review can take around 60 days sometimes.

Once this is approved, they require all parties to sign an “arm’s-length affidavit,” which is essentially a protective statement saying that the short-sale is happening in good faith and that there is no malicious or fraudulent intent in the short sale between both the buyer and the seller. Once this is signed, then an approval letter will usually be issued. In total, this whole ordeal could take up to 120 days or more.