The Complete Short Sale Process From A to Z

Even after all these years, the short sale process remains a mystery to many people. Distressed sellers are puzzled and desperate for some guidance from a short-sale agent. Even more confusing… most real estate agents in Orlando don’t know how to do a short sale.

What’s a Short Sale?

A short sale is a situation that occurs when a mortgage lender agrees to accept a lesser amount than what’s owed on the outstanding mortgage balance. This situation benefits both the lender as well as the seller [homeowner] when foreclosure seems unavoidable.

By agreeing to a short sale, the lender can avoid a long drawn out and costly foreclosure process. Because even if the bank forecloses, there’s no guarantee that it will sell at the auction in which case the lender would end up back with the property as an REO [real estate owned] property. If the lender keeps the property, they will ultimately have to put it up for sale again, and there’s no telling how much they will get or how long it will take.

The dollar amount offered on a short sale is often more than a lender would receive at the auction or as an REO listing. However, you should know that banks are never thrilled about releasing mortgage obligations at huge discounts either.

The Seller

There are 2 main reasons why lenders grant short sales. First, the homeowner is going through a financial hardship and cannot continue paying the mortgage. Secondly, there isn’t enough equity in the property to pay off the mortgage and closing costs, taxes, etc. Both of these conditions must exist for a bank to approve a short sale.

A few examples of financial hardship may include loss of employment, reduction in income, divorce, medical condition, job transfer, bankruptcy, or even death.

Sellers must prepare a financial package so they can submit it to their lender. Every bank has a different short sale package but the basics are the same among all lenders.

The Short Sale Package

Following are the main components of a typical short sale package:

  • Authorization Letter: This is a document which allows your short sale agent to speak with your lender on your behalf.
  • Hardship Letter: A detailed letter describing the hardship the seller is going through explaining why they can no longer afford the mortgage.
  • Preliminary Closing Statement: Discloses the contract amount, realtor commissions, closing costs, taxes and any other fees involved with the transaction.
  • Financial Statement: A statement which discloses your income versus your expenses.
  • Two years of your tax returns
  • Two years W-2s
  • Last two bank statements
  • Two months of pay stubs
  • CMA: This is a report prepared by your short sale agent which lists recent sales of comparable homes in your area.

Submitting an offer to the Bank

Before submitting a short sale offer to the lender, buyers should ask their real estate agent for a list of comparable properties. The lender will look to get an offer that’s close to market value.

It’s important to keep in mind that the listing price on a short sale may not reflect the market value. The property will most likely be lower than market value to entice more buyers to make an offer. Most short sales begin when there’s a signed and accepted purchase offer by the seller and buyer.

Keep in mind that the short sale listing price might not reflect market value. The property might be priced below comparable sales to encourage multiple offers. Some short sales can begin before an offer but banks will most often start the procedure upon receipt of an accepted purchase offer.

Once the seller accepts the offer, the listing agent will then send the listing agreement, signed purchase offer, and proof of funds to the bank together with the completed short sale package.

If the package is incomplete, the lender won’t even process it. This is why it’s so important to have an experienced short-sale agent representing the seller.

The Short Sale Lender

Short sales are anything but short… buyers can end up waiting several months to get a response from a lender. The short sale listing agent must follow up with the bank regularly and keep detailed notes of each contact. Being a short sale agent in Orlando since 2004, I can tell you that following up regularly with the lender is crucial to the success of a short sale transaction.

I can’t tell you the number of times a buyer has decided to cancel their offer because of the bank taking too long to respond. This is especially true when the buyer needs to buy a house ASAP. For buyers wanting to close quickly, a short sale may not be the best option for them.

The Usual Process

Once the lender receives the completed Short Sale package, this is usually what takes place on the bank’s end:

  • The loss mitigation dept acknowledges receiving the completed package. This alone can take between 1 – 3 weeks.
  • A short sale processor is assigned to the file, this can also take up to a week or two.
  • A BPO aka [Broker’s Price Opinion] is ordered. The lender will contract a local realtor to give their opinion on what the property is worth. They do this by looking at the comparable properties in the area and are supposed consider any repairs the home may need.
  • Another short sale processor maybe assigned to the file. This can add another week or 2.
  • A second short sale processor might be assigned. This can take another 30 days.
  • The offer is either denied or accepted. If the offer is denied, the bank will counter with the amount they are willing to accept. At this point the buyer may wish to counter the bank’s offer together with a contractor’s estimate and a CMA.
  • Once the bank has accepted the offer, the lender will require all parties in the transaction to sign an arm’s length affidavit. This document states that parties are unrelated and acting their own best interest.
  • The lender will send out a short sale approval letter approving the contract amount.

While all this is going on, sometimes buyers will give up hope and cancel. They become tired of waiting because the short sale process is taking much longer than they expected. I’ve had situations with clients where buyers just walk on the deal without even telling their real estate agent.

I’ve had some Orlando short sales get approved in two weeks and others take more up to 6 months on average. A top short-sale realtor can help speed up this process, but at the end of the day, it’s all up to the lender. Some lenders are easier to work with than others.

It’s crucial that the short sale agent check-in with the short sale bank at least once or twice a week. Unfortunately, there are many incompetent short sale processors and the short sale agent may have to go over the processor’s head or request an “escalation”.

Final Thoughts

A good short sale listing agent will often have a good idea about when approval will come after the file has been sent for the bank’s final review. If so, the buyer would be wise to start the loan process if they haven’t already. Occasionally, banks will only give buyers 2 weeks to close so it’s important to be ready.

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How To Choose A Short Sale Agent in Florida


Your Success Depends on the Short Sale Agent You Choose

A quick word to the wise… pick your short sale agent very carefully. A short sale is way too complex of a transaction to trust a new agent with. And don’t make the mistake of just hiring the agent with the flashiest website either. When dealing with a short sale, you need a short sale specialist… an agent who specializes in short sales.

Back in 2006 when the market crashed and short sales were everywhere, a lot of agents decided to specialize in short sales. Real estate training companies made big profits by offering short-sale training to thousands of agents. However, there’s no way you can learn how to be a short sale agent in just 3 hours. Unfortunately, many homeowners fell victim to these newbie agents claiming to be short sale specialists resulting in a failed short sale transaction.

Now in 2020, short sales in Orlando are not as abundant and there are a lot fewer short sale agents. Many times I get referrals from other real estate agents in Orlando because they don’t want to deal with the extra work involved with processing a short sale.

Ask a Real Estate Agent to Refer You To a Short Sale Agent

If you have a friend or relative that’s a real estate agent, chances are they’ll be able to refer you to a good short-sale agent. Short sales require a lot more work than a traditional transaction which is why most agents avoid them and are happy to refer them to another agent.

How Experienced Should my Short Sale Agent Be?

There are realtors out there that have been in the industry for several decades and have a ton of experience. However, some real estate agents stay in the business for longer than they should. What I mean by that is… the real estate business changes constantly and if you have an agent that’s set in their ways of doing things and not willing to keep up with the changes, then you’re in trouble and you should probably find another agent.

When it comes to finding an experienced short sale agent, you need to verify how active they’ve been recent. Ask them to show you proof of recently closed short sale transactions and find out how many clients they’re currently working with. Sure, they must have been doing short sales for a long time but even more important is what have they done lately.

I’ve been a short sale agent in Orlando, FL since 2004 with thousands of closed short sale transactions and I can tell you that there have been a lot of changes in the way short sales were handled back then and now in 2020. From different incentive programs being offered by lenders to the Federal rules and regulations, everything will continue to change.

When choosing a short sale agent, here are a few questions you should ask:

  • How many years have you been a short sale agent? Your short sale agent should have a minimum of 3 years experience in selling short sales. There’s no better teacher than experience. Making mistakes and finding out things the hard way is a great way to learn and avoid making those mistakes on future short sale deals. If you’re able to find an agent with experience in real estate investing, even better.
  • How many short sale transactions have you closed? Just imagine the knowledge of a short sale agent that has closed over 1,000 short sale transactions. These are the elite short sale agents and they will know what each of the top lenders will require, how they operate and what to expect. They will also have short sale packages from every single bank on hand. These agents will more than likely have systems in place to help streamline the process while providing you with individual attention.
  • Do you foresee any problems with my short sale? An experienced short sale agent will know if there are any red flags to warn the seller about just by asking a few questions. Remember, a real estate agent is not allowed to give tax or legal advice. However, the agent should be familiar enough to point out some potential tax consequences, legal issues, etc. Your short sale agent should be able to refer you to a real estate attorney in needed.
  • Do you have any experience with my lender? A past deal doesn’t guarantee you’ll get the same response from a bank, but it can be a good indicator. Different banks have different processes and some are much tougher to negotiate with than others. Chances are that your short sale agent will have some experience with your lender, unless your lender is a private entity or investor. If you have a loan with a private investor, you may not get the answer you want but at least you’ll get a quick response.
  • Will you be processing my short sale? Make sure the agent you’re talking to is also the person processing your short sale. If an agent is too busy, they may pass your short sale off to a third party processors who may not even be licensed. Some people believe real estate attorneys are the best negotiators for handling short sales. This isn’t the case, I actually have several real estate attorneys referring there Orlando short sales to me. The difference is that an attorney will charge you whether the deal closes or not and a real estate agent only gets paid if the deal goes through.
  • How long do you expect it will take for my short sale to close? If you haven’t yet heard, short sales are anything but short. However, if your short sale agent has recently done some deals with your lender, they should have a pretty good idea how long everything will take.

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Fannie Mae Short Sales Just Got Shorter

Fannie Mae

I believe that Fannie Mae, Freddie Mac as well as most all other lending institutions finally acknowledge the importance of the realtor’s role in the short sale process.

It seems like yesterday [back in 2004] when we started doing short sales. Orlando realtors like myself that specialized in doing only short sales dealt with frustration everyday.

Short sales were rare and many lenders weren’t equipped to properly handle the short sale process. And when you did complete a short sale, getting your hard earned commission from the lender at the closing was like pulling teeth. Thankfully, we’ve come a long way since then and most lenders are very aware of how to handle a short sale efficiently.

In 2008 shortly after the bubble burst in 2007, the US Department of Treasury introduced the Making Home Affordable Program aka “HAMP”The intention was to reach out to struggling homeowners that wanted to try and keep their homes as opposed to selling them via short sale or losing them to foreclosure. The program was extremely successful at what it was supposed to do which was help homeowners modify their mortgage so that they could keep their home.

By this time, “short sale” was a pretty common term for anyone who owned a house or anyone who watched the local news for that matter. Lenders were also getting used to processing short sales and even started offering several different “Cash for Keys” programs as an incentive to homeowners who agreed to short sale their home. Even though, overall, short sales are still complicated and time consuming many lenders have seen the light and have taken leaps and bounds in streamlining the the short sale process.

Fannie Mae [Federal National Mortgage Association] announced recently that they will attempt to assist listing agents that want to pursue a Fannie Mae short sale. In order to understand Fannie Mae’s new and improved process, you have to understand how short sales work.

 

What Changes Were Made With Fannie Mae Short Sales?

Fannie Mae just introduced a new website www home path for short sales .com. At the time of the listing, Fannie Mae will now provide list price guidelines. In addition, the agency will work directly with the listing agent or seller to get the 1st lien approval. The next step for Fannie Mae is to allow realtors to negotiate an offer directly through them saving us even more time.

 

Jennifer Zamora Orlando Realtor

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Demystifying the Short Sale Process

 

For those buyers facing an imminent threat of foreclosure, a short sale is a viable option indeed. Through a short sale, the seller eliminates the debt burden that comes with his value- depleted property that no longer attracts enough of a sale price to pay off the loan in full. Scores of homeowners saddled with underwater properties have taken the help of short-sale negotiators to get a reasonable price for their homes in recent times. If you are looking for advice and information on Orlando short sales, read on. 

 

Getting the Short Sale Package Approved

 

This is the first step in your Orlando short sales process. Your lender needs to approve your sale of the property at a price that is less than your total debt due to him. To do this, he needs to be sure that you cannot afford to pay off his loan from other sources (e.g.: your savings).  The first step of the short sale is for you to present a short sale package to the lender. This package outlines an overview of your finances and your credit score along with a hardship letter and the home’s documents indicating the purchase price. Once the lender is convinced that a short sale is your best option, he approves the process.

 

Listing the Property

 

Now it is time to present the property in the best possible way so that you can attract the most number of buyers. Working with reputed Orlando realtors who are also experienced short-sale negotiators is a great advantage at this stage. The realtor has an understanding of the market and the skill to present your property as a good buy to prospective homeowners. Locate a realtor who has a deep insight of the current Orlando real estate market so that you can price your home right. The Orlando realtor will also ensure that your home appears in all the right listings so that it is highly visible in the marketplace.

 

Sell the Home and Get Rid of Your Debt


Once your home gets an offer you like, it is time to start processing the short sale. Your lender may require several documents to process the actual sale. Here too, an experienced Orlando short sale realtor can prove to be of immense help. Collect all the documents and present them to your lender for approval of the proposal. Once he gives his approval, the sale can be finalized and closed. In some situations, the lender may reject the proposal.

 

If this does happen to you, don’t give up hope. Ask your lender to give the reasons for rejection in writing. There may be some negotiations that you can do with the buyer/ lender with the help of your Orlando realtor to ensure that the proposal is tweaked to meet his approval.

 

Orlando Real Estate Broker

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Can you do a Short Sale if you’re not behind on your Mortgage?

Typically, homeowners that are no longer able to continue paying their mortgage are going through some kind of hardship such as job loss, decrease in pay or hours, health issues, divorce, death, mortgage payment adjustment, and even incarceration. Oftentimes, however, there are reasons that people must sell their homes when there is no hardship. These include job transfer, military deployment, etc. And, in most cases, for all of the reasons mentioned above lenders have been very accommodating to those who want to sell.

However, now more than ever we get contacted by sellers that want to Short Sale their house but they don’t fall into either category mentioned above. They can afford to keep making their payments but they hate the idea of paying on a mortgage with a principal balance that is a lot more than their property is worth. These sellers just want to get out of a bad investment and get on with their lives.

The truth is that it’s hard to say whether the lender will approve a short sale for a homeowner that has no hardship. Some lenders are more flexible in that respect than others.

It’s important to be aware that many short-sale lenders are controlled by the guidelines of the investors that own your loan. So, while a loan may be serviced by Wells Fargo, the loan is actually owned by another entity. It is that other entity that decides on accepting or declining your short sale. Most investors do require that the sellers have missed mortgage payments, and others do not.

Unfortunately, you just don’t know how things will play out until you start the short sale process with the lender. Only after you get the ball rolling with the short sale will you know what the lender will require from you.

If you’re current on your mortgage but would like to short sale your Orlando property because it owes more money than it’s worth, come in and see us. One of our Orlando short sale experts will give you a free “seller’s situation analysis” so that you can find out what your options are and move forward with the knowledge that you need to make the right decision.

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