Buying a Short Sale? What is the Process?
- You have found your great Destin or Emerald Coast short sale. Now what? When you write your offer, your agent should insert language into the contract that states the contract is "Contingent on seller's mortgage holders' approval". You may also be asked to sign an addendum stipulating how many days the short sale lender has to approve your offer, after the seller signs and submits it. Don't be mislead into thinking a shorter time period will speed up the process, it won't. Be realistic at the outset and you'll have a better chance of obtaining your dream real estate.
- Be prepared to make a deposit, called "earnest money". Remember, you are entering into a contract with the homeowner, subject to their lender's approval. It is still a contract, and should be entered into seriously, with intent on getting to the finish line.
- The Seller may counter your offer. Remember, the contract is between you and the Seller, not you and the Seller's lender. The Seller does not want to submit an offer to the bank knowing it will likely be rejected and/or counter-offered because it is too low or has too many closing costs on the Seller's side. The lender pays these costs, and will always analyze its "net". In this case, it will be a "loss", so the lender wants to mitigate the loss as much as possible.
- After the contract is signed and agreed to by both you and the Seller, it will be sent to the Seller's lender, or lenders if there is more than one mortgage holder. Documentation submitted with the contract includes an estimated net sheet, the Buyer's approval or proof of funds letter, the listing agreement, Seller's financial worksheet, recent paystub, recent bank statement, last year's tax returns and hardship letter
- The Seller's lender will then order an independent appraisal and/or Broker Price Opinion of the subject property.
- The Seller' lender may counteroffer your offer with the appraised value or close to it, if your offer and the net to the lender is too low.
- You will accept or counteroffer this amount. The lender makes it decision based on the net requirements of the end-investor on the mortgage regarding price. For example, even though the "lender" may be Wells Fargo, the actual investor reaping interest may be the Bank of New York or Merrill Lynch. There may also be PMI or private mortgage insurance on the loan. In that case, the PMI company will also order a separate appraisal or BPO. Your offer must satisfy all lienholder's requirements. If there is a second mortgage on the property, the first mortgage holder will offer the second mortgage holder a dollar amount as a "buy out". I help facilitate these negotiations. Additionally, the lender(s) may ask the Seller for a cash contribution or promissory note. If the Seller cannot comply, you may be asked for additional monies to make up some of the difference. If the property is a good deal, you may wish to do so.
- The timeline for initial response from the lender may be 12 to 16 weeks. This because lenders have an overwhelming number of sellers asking for Short Sales. Some of the bank "negotiators" have as many as 400 files at one time. Bank of Americaã€€alone has over 200,000 short sale contracts they are processing. Rest assured, I contact these lenders every three business days by phone and/or email to get updates on the offer.
- After final approval by the lender, a "demand" or "approval" letter is sent out to the Seller. The letter will normally stipulate that closing must occur by the date stated in the contract, normally within 30 days, or there will be a per diem penalty for not closing on time. Thus, you are expected to have your mortgage, insurance and inspections completed in a timely manner. The per diem penalty is quite common with corporate contracts.
- The lender will expect to see a copy of the settlement statement at least two days prior to closing to ensure it is accurate, and matches what was stated in the net sheet that was submitted with the offer and on the approval letter
- Congratulations! Your patience has been rewarded. You got a great deal on a Destin short sale!