THE SHORT SALE TRANSACTION : BACK TO THE BASICS

As an everyday California Realtor and short sale negotiator, I sometimes take for granted all the situational learning I’ve accumulated over the past four grueling years.  What I now regard as second nature may truly be an exercise of the unknown to others when it comes to the short sale transaction.  If you look at statistical evidence, putting a proper file together, and efficiently walking said file from submission to short-pay approval, must be no simple task.  In fact, it is estimated that only 1 in 3 short sales get approved, and even fewer close successfully.  These numbers certainly demonstrate the inherent challenges Realtors face when taking on short sale listings from their clients.

I must have woken up on the altruistic side of the bed today… because I am calling upon myself to present a quick refresher course dissecting the short sale basics, which my audience of fellow agents, buyers and sellers will hopefully find useful for their own short sale endeavors.

A short sale is a real estate transaction in which the sale proceeds are less than the outstanding loan balance(s) owed on the current mortgage lien(s).  Due to the realized loss incurred by the owner of the loan, approval from the owner(s) [of the note] becomes a prerequisite prior to closing the transaction.  Although each lender has adopted its own unique short sale process, each share similar characteristics, and the outline below hits the key highlights.  Before engaging the short-pay lender, it is imperative that you work directly with your homeowner clientele to acquire the appropriate items the lender will be requesting.  It is likewise just as important to the take the next step and audit all documentation, so that no rock is left unturned and the file is evaluated from every angle.  Future blog postings will break down the underwriting process of your short sale package.  For this current article, let’s make a big assumption that such underwriting has been completed… What’s next?

1. SUBMIT 3^rd PARTY AUTHORIZATION à This form is predominantly faxed / submitted separately from the full short sale package.  To ensure your form is accepted by the lender, be sure that your authorization form includes:

                   * full property address, as it appears on the homeowner’s mortgage statement

                   * loan number(s)

                   * seller full printed name(s)

                   * seller signature(s) and date(s)

                   * last 4 digits of seller social security number(s)

                   * identify all intended, authorized parties

Usually this form is honored for the duration of the short sale review process, or until the homeowner instructs their bank to remove authorized parties.  Should you need immediate access to your client’s account, and do not have the luxury of waiting for your authorization form to clear, you can always call the lender with your client and acquire temporary verbal authorization.

3. FILE SUBMISSION à Once your short sale package is rendered complete, packed full of your seller’s financial data and your transaction documents, your file should be submitted to your lender to initiate the negotiation process.  It is important to transmit the entire package in one shot, and in chronological order.  It is this part of the review process which seems to give the short sale nation the most grief, yet it is ironically the portion that which we as real estate agents have most control over.  If information is missing, or documents cannot be located in a messy package, the short sale department will not advance your file’s review.  If submitted incorrectly, you can expect your short sale to be delayed significantly.  To avoid frustration, heart-ache and wasted time on the back-end, do yourself a favor and construct your short sale packages carefully on the front-end.   Always use a fax cover letter which identifies each item contained in the transmission.  In case you are wondering, below is the order chronology I find most effective for my short sale packages after much trial and error:

                   * fax cover sheet

SELLER HARDSHIP DOCUMENTS                   

                   * seller hardship letter

                   * short sale lender application, which will include a financial statement for the seller

                   * seller proof of income

                    * seller bank statements

                    * seller 4506-T form

                    * seller last 2 years tax returns

SHORT SALE TRANSACTION DOCUMENTS

                    * Listing Agreement

                    * Purchase Agreement

                    * HUD-1

                     * buyer financing information

4. FILE QUEUED FOR SHORT SALE REVIEW à Upon receipt of the initial short sale request, the short-pay lender will audit the package for completeness and accuracy.  Only when the file is deemed complete will the account be advanced from the set-up team to the negotiation team.  For some lenders / servicers, the transition from the processing phase to the negotiation phase is not completed until the next step [COLLECTING VALUES] is also completed.  For other lenders, a negotiator may be assigned to your file prior to the recording of the subject property valuation data, but negotiations will obviously be limited until the COLLECTING VALUES process is completed.    

5. COLLECTING VALUES  à The short-pay lender will contact the file’s designated listing office to schedule an appraisal or Broker’s Pricing Opinion [BPO] in order to generate Fair Market Value [FMV] assessment data.  Such value reports are predominantly generated by a contracted 3^rd party, who is responsible for reporting their findings back to the short-pay lender. 

6. COMPARATIVE ANALYSIS à The bank’s FMV figure will be reviewed by the bank negotiator in conjunction with the buyer’s standing offer to determine strength and acceptance eligibility of the original offer submitted.

•  If offer is within bank’s acceptance range, file will be submitted to the investor for FINAL REVIEW & APPROVAL RELEASE.
• If the buyer’s original offer is less than the bank’s acceptance range, the bank negotiator will respond with COUNTER REQUIREMENTS. 
• If there is a sizable discrepancy between the buyer’s best & final and the bank’s bottom-line payoff requirements, this will be the appropriate time to request a VALUE DISPUTE. 

7. CLOSING THE SHORT SALE  à  When your file is approved, you will usually be allotted 30 - 45 days for buyer to obtain financing, and for escrow procedures to fully run its course all the way through recording.  At the end of escrow, title will be transferred from seller to buyer, and the well-deserved commissions will be paid out.

I hope you all find the above information helpful.  Be on the lookout for a new posting very soon.