To become the queen of short sales is not my aspiration in life. It's not even my aspiration in real estate. However, anyone in real estate today is bound to encounter a short sale. Short sales are a transaction in which the lender allows the house to be sold for less than is owed on the property.
The process of short sales is lengthy. Initially the seller has to be delinquent on their mortgage payments. Reasons for this delinquency vary and are not always something the seller has any control over. Once the warning notices come from the bank, the seller knows they are in trouble. Sometimes circumstances right themselves and the seller can work out a payment plan and get back on track. If not, the home owner has the right to list the house for sale.
In St. Paul's real estate market, the house may not be worth the amount of the mortgage. The home owner must inquire of the lender whether they will accept a short sale and if possible, find out how much of a discount the lender will accept. Usually the lender will not give a figure at this stage of the transaction.
The home owner lists the house for sale with a disclosure that any offer will be contingent upon bank/lender approval. When an offer comes in, the real estate agent must submit the offer and a preliminary settlement statement to the lender. The seller has to submit proof of financial distress, a hardship letter of explanation, and various financial documents supporting their inability to pay. The purchase agreement and the seller documents are packaged and sent to the "committee" for approval.
The time it takes to get approval varies by lender. Some companies complete approval in a short time while others take more than a month. Many times the potential buyers get tired of waiting and withdraw their offer.
When a purchase agreement is accepted by the "committee", it will be accompanied by instructions for the short sale. Usually these instructions include a deadline date for the short sale to close; the settlement statement which has to agree with the settlement statement at the closing OR someone has to come up with money out of their pocket; emphasis that NO funds are to be given to the seller; and a letter which must be signed by the seller for releasing the lien on the property. The closing agent must follow the specific directions from the lender or the short sale is nullified.
Acceptance of the purchase agreement by the lender is when the rest of the transaction appears to return to normal. The inspection can be scheduled. The appraisal can be ordered. Closing documents will be prepared. All parties will attend the closing and clear title will be conveyed to the buyers. The difference in the process is that the payment to the lender is short of the amount owed and the seller has one extra document to sign acknowledging how that shortage will be handled.