Steps of doing a shortsale

4 Replies

I have been making lots of cold calls to pre-foreclosure, and I found one that the mortgage is higher than what the house is worth so need to do short sale.  I have never done one before, can anybody share the steps with me?  What is the procedure? Are there forms I need to prepare?

Thank you.

The steps are:

1) Find an experienced short sale real estate agent, as one will be required by the lender anyway.

2) Do what they say....there are about a dozen different things to consider...you will not be doing this yourself.

If you don't have a legit POF or preapproval, or if you're trying to wholesale, don't waste your time.

Check out https://www.biggerpockets.com/blog/what-is-a-short-sale/.

Generally speaking, short sales are a pain for investors due to the timeline and uncertainly involved. 

The process usually goes something like this:

  • Seller/Borrower submits a mountain of paperwork and hardship documents to the lender (there are short sale specialists and attorneys who specialize in negotiating short sales, it's generally not a do-it-yourself gig)
  • Lender takes several months to approve the short sale
  • Lender does a BPO to determine market value
  • Seller lists the property with a realtor to ensure full market exposure and maximum sale price
  • Buyer/Investor makes an offer
  • Seller/Borrower accepts offer (which is subject to lender approval, per a short sale addendum to the contract)
  • Buyer/Investor opens escrow
  • Bank has 60 to 90 days to respond
  • Bank comes back on day 89 and rejects offer, wants more money for the property (after all, several months have passed since the BPO)
  • Buyer/investor cancels the contract and walks away, having wasted three months waiting with money tied up in escrow. 

If the short sale contract is accepted by the lender, then the clock starts on inspections, financing, and due diligence (sometimes as much as three months after the offer was made), making the entire transaction a 4-6 month process.

This is obviously a generalization. There will be variations from state to state, market to market, lender to lender, and deal to deal. 

Some are easier than others. Depends on cooperation from borrowers, account details, investor or insurer guidelines, how many liens are on title, and other factors. 

I personally close them all the time and think they can be great opportunities. 

What are you trying to accomplish? Do you want to buy it yourself, wholesale it, or?

Originally posted by @Jeff Copeland :

Check out https://www.biggerpockets.com/blog/what-is-a-short-sale/.

Generally speaking, short sales are a pain for investors due to the timeline and uncertainly involved. 

The process usually goes something like this:

  • Seller/Borrower submits a mountain of paperwork and hardship documents to the lender (there are short sale specialists and attorneys who specialize in negotiating short sales, it's generally not a do-it-yourself gig)
  • Lender takes several months to approve the short sale
  • Lender does a BPO to determine market value
  • Seller lists the property with a realtor to ensure full market exposure and maximum sale price
  • Buyer/Investor makes an offer
  • Seller/Borrower accepts offer (which is subject to lender approval, per a short sale addendum to the contract)
  • Buyer/Investor opens escrow
  • Bank has 60 to 90 days to respond
  • Bank comes back on day 89 and rejects offer, wants more money for the property (after all, several months have passed since the BPO)
  • Buyer/investor cancels the contract and walks away, having wasted three months waiting with money tied up in escrow. 

If the short sale contract is accepted by the lender, then the clock starts on inspections, financing, and due diligence (sometimes as much as three months after the offer was made), making the entire transaction a 4-6 month process.

This is obviously a generalization. There will be variations from state to state, market to market, lender to lender, and deal to deal. 

Relatively well said. I would disagree with a couple of things.

  • Federal law dictates a short sale be decisioned within thirty days of the submission of a substantially complete short sale package. Where the months and months occurs is not with the lender. It's with the seller/buyer/agent taking months and months to get their paperwork in to the lender. Examples:
    • Short Sale Package requires full tax returns, but borrower submits pay stubs or a W-2, or hasn't filed taxes, or has an extension on their taxes.
    • Borrower omits hardship letter, or bank statements, or budget, or income and expense declaration, etc.

Once everything is in, THEN the lender's 30 day clock starts to approve/deny the shortsale as presented.

  • Lender may do a BPO. They may also do a full blown 1004 or at least a 2055. I wouldn't rely on a BPO for a short sale unless it was a Fannie/Freddie short sale.
  • Lenders don't reject any offers. What they reject is the proceeds amount offered to the lender. You may argue they are one in the same but they aren't. We can't dictate what the purchase price or offer is, or can be. We can only dictate what the acceptable minimum proceeds can be. That can mean the offer is fine but someone is gonna have to get less money or come up with more money to make it work. Granted, that can often times mean upping the sales price but that's not what it is that we are rejecting.

Once it's approved, the months and months aren't the lender's doing. I shake my head at how many times we get all the way to the end only to find out when they open escrow that the seller forgot they had a second lien, or forgot to tell anyone and now they have to start all over.

Lenders do cause delays, especially when there are more than one lienholder but a good agent will navigate through that quickly. More often than not, it's the agent that isn't asking all of the right questions, to the right people at the right time. I agree in the old days (Which were not long ago) lenders were notorious but we are on a much tighter schedule now with the CFPB breathing down our backs to make sure we are efficient and fast.

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