Q. I want to put in an offer on a short sale but the listing agent said it could take 6 months just to get a response from the bank as to whether my offer is accepted or not! Why so long?!
A. A short sale involves selling your home for less than the balance owed on the mortgage. In doing so, the Seller must ask their lender to accept the lesser amount to satify the mortgage. The process is very complex and involves many steps before the offer is accepted, rejected, or counter offered.
The distressed seller would find a licensed REALTOR® to list the home for sale, market it and find a buyer. While that is happening, the Realtor or a member of their negotiations team would begin the process of notifying the mortgage lender that the Seller is having difficulty paying their mortgage and is attempting a short sale, thus attempting to avoid foreclosure. If the Seller does not truly have a hardship (job loss, divorce, medical bills, etc.) and has means to pay the mortgage, the bank is unlikely to agree to the short sale.
The next thing that must happen in the sale is similar to any home sale. A buyer must be found who is interested in purchasing the property under certain conditions. Once the buyer submits an offer on the property, and the seller accepts it, a short sale package is put together for the bank. The package normally includes a copy of the Seller’s listing agreement, a copy of the signed offer, a hardship letter from the Seller, copies of the Seller’s last 2 years of tax records, 2 months of pay stubs and bank statements, and a financial worksheet.
Here’s where the slowdown starts. Once a Seller’s short sale package is sent off to the bank, we wait. What are we waiting for exactly? We are waiting for our file to be assigned to a negotiator at the bank, and a BPO to be ordered. A BPO (Broker Price Opinion) is completed by an independent Realtor of the bank’s choosing to do a market analysis and tell the bank if the offer submitted is worthy of approval. Its kind of like an informal appraisal. Usually the bank allows the BPO agent a week or two to complete their analysis (more time that we wait!) Why do they do this? Because the bank is not here in Tampa, Florida, most likely, and they don’t know if the offer submitted is fair, and a better value to them, or if they’d be better off foreclosing and recouping their lost money when the property is sold as an REO (Real Estate Owned) foreclosure listing. Therefore it is unwise to make unrealistically low offers on short sales because a BPO will show what similar homes are selling for, and if the offer is too low, the bank will just reject it.
Banks are facing record foreclosures and short sales and are understaffed. In recent months, we have seen a slight increase in the speed at which we get responses, but it requires constant follow up with the banks. To meet the high demand, some banks have broken down the tasks involved in a short sale into various different departments – from customer service reps to loss mitigators, asset managers, collection departments and foreclosure departments. Sometimes, in our experience, the right doesn’t know what the left is doing so to speak. Escalating a file can take days, weeks, months before a human’s eyes can confirm receipt of the file and begin discussing your situation before the file gets transferred to the next department. In rare cases, we’ve seen banks lose the file – causing the process to breakdown and start all over again. Once the bank has assigned a negotiator, the BPO has been completed, and they’ve approved the sale price, if the loan was secured by FHA, often the mortgage insurance company must also approve the sale – yet another department for the file to pass through before its given a final OK. Each step in the process the banks normally allow a week to 14 days to go through, so if the file must past through 5 different departments, figure 14 days at least for each department (if there are no hiccups along the way!)
A question we are frequently asked as agents is “Well if the bank takes too long, can’t I just buy something else and walk away from the short sale?” The answer is, it depends. You have to read your contract. Some short sale contracts may state that you have to wait at least 45 for the bank to respond. If you are within that 45 day period (depending on your contract – it could be longer), no, you cannot just walk away. However if that time period has passed, depending on how your contract is written, you may withdraw from the contract. Consult a Realtor when writing a contract (or withdrawing one!) on any short sale to make sure you know what your deadlines are.
What seems to be a very difficult part of the process for most short sale sellers is the collection of all of the financial records the bank may request – from tax returns, financial statements, bank records, pay stubs and more. Yet if a complete financial package is not turned into the bank, the file will sit in a pile or returned to the bottom of the stack, or if weeks pass, even closed. Banks are focusing most on files with complete packages and a ready and willing buying with an offer submitted with all paperwork turned in accurately. Sounds simple right? Wrong – sometimes the bank doesn’t tell you they are missing a piece of documentation and the file is simply closed if the seller’s Realtor hasn’t followed up to find that out. Ouch!
If you are consider a short sale the phrase “Patience is a Virtue” rings true. We know it is very frustrating to write an offer on a short sale listing and then be required to wait weeks, even months before the bank responds. Unfortunately, the bank’s response is not always “Thanks very much – we accept!” Sometimes the bank counteroffers or just says “No” and the process starts over. It’s no wonder that we have record foreclosures with such a crazy process to get a short sale accepted.
The other thing that may happen is the bank may accept the offer but require that the Seller sign a promissory note for a portion of the balance owed, or the bank may not release the deficiency. What that means is the bank reserves the right to come after the Seller after the short sale for the difference owed. Sometimes we’ve seen Sellers back out of a short sale at this point, after the buyer has spent months waiting. Again, its important that your agent ask these questions up front so that you don’t run into such a glitch.
Some banks have gone to an electronic system, like Bank of America, who uses Equator, where now everything is uploaded electronically and the listing Realtor can login to see what paperwork, if any, is needed. Wow – efficient! Well – kinda. Bank of America was the lender on a short sale I handled recently and it still took about 6 months, start to finish.
Still thinking about buying a Hillsborough or Pinellas short sale? It’s important to have a REALTOR® on your side who is familiar with getting short sales done. Contact us today if you’d like help buying or selling a short sale in Tampa Bay.
Click here to search Tampa Bay Short Sale homes.