What is a Short Sale? A Short Sale is a property that is being sold for less money than the mortgage that is owed on the property. The payoff to the bank will be “short”.
Who owns the Short Sale Home? Contrary to popular belief, the bank is not the owner, a person (the seller) does. The bank does not own the property until they go through the foreclosure process and repossess the property for non-payment of mortgage.
Is a Short Sale Property also in Foreclosure? Probably, but not necessarily. More than likely the owner has stopped paying the mortgage, so it is only a matter of time before the bank repossess the property in a foreclosure process.
Why is the Bank involved in the Short Sale? The banks has to agree to accept less money than is owed on the mortgage, so the bank has to approve the loss on the short sale.
How Long will it take the bank to respond to a Short Sale Offer? Usually 1-6 months, and sometimes the bank will not respond at all. The bank has no obligation to agree to even do a short sale.
Why does it take so long for a Bank to Respond? Banks are overwhelmed with short sales and understaffed. If the listing agent does not submit a proper and complete “short sale package” that will cause more delays.
What is a Short Sale Package? Listing agent/seller has to submit documentation verifying the seller/owners inability to continue paying the mortgage. The short sale package will include, 2 years tax returns, financial statements, hardship letter, comparable for the neighborhood and other pertinent information.
Who signs the Short Sale Contract? The seller (and buyer) sign the contract and then it goes to the bank for their approval. The bank does not sign the contract, because they are not party to the contract…they only hold the mortgage to the property.
What are the chances that the bank will approve my offer as submitted? Slim. Usually the bank will want more money for the purchase price and want to pay less for buyers closing costs or concessions.
What else can stop the Short Sale? As you wait for a Short Sale response, the property can get foreclosed on and then the bank owns it, so your contract with the previous owner/seller is no longer valid. A purchase contract with the seller does not gaurantee that the foreclosure will be postponed.
Does a banks response guarantee the sale? No, banks are known to change their mind about what they agreed to and decide they want different terms for the short sale than they previously stated. Until the bank approves the HUD (closing statement) things can change.
If the bank accepts or approves the sale, does the seller have to sell? No, seller might not agree to a deficiency judgement or bank may request that seller come to closing with some form of payment, or seller may file bankruptcy, or the seller may just give the property back to the bank (Deed in Lieu of Foreclosure) or just let the property go into foreclosure. The seller could also be non-responsive and refuse to sign anything.
What else can be a problem on a Short Sale? There could be 2 mortgages on the property with different banks which make negotiations much more difficult. There is always a political “tug-of-war” of war between the banks debating on who gets how much $ from the short sale. You may have the 1st mortgage holder agree to the short sale and the 2nd mortgage holder refuse to take a short sale. Or the two banks might never agree to a money split and then there is no short sale.
Copyright @ Buyers Broker of Florida 2011 “Orlando Short Sales; Questions and Answers”