The short sale process is, at it’s core, a simple one. We know that bringing this simple process to pass, can be another story. Many of the issues that regularly arise, and cause the word short sale to knot your stomach, can be overcome with some practical steps and a good Escrow Officer.
You must first know that not all short sales are meant to be. Red Flag: If the seller is unwilling to participate, and provide the necessary documentation for the short sale package to the bank – you may want to stop here. The seller must be fully invested in the sale of their home, or chances are, the property will not sell. The seller must also identify a legitimate hardship: Ethical implications notwithstanding, the seller should present to the bank a legitimate hardship (in the form of a letter) in order for the bank to consider approving the short sale.
Critical too, is the property search you ask your Escrow Officer to perform prior to listing the property. The foreknowledge of any outstanding liens, or of that 2nd Home Equity loan thought to be paid off, will always help eliminate the 11th hour scramble to negotiate these liens to be paid, often ending in three months of work and a cancelled escrow.
The number one point of contention I have found in the short sale, is undoubtedly the HOA and more specifically the past due HOA assessments. One of the first questions to ask is whether or not the HOA assessments are paid current. If assessments are more than a month behind, it is best to obtain a balance statement; three months behind, it may be in collections with an attorney, from whom the seller must obtain a payoff statement. It is not uncommon for $1000 in late assessments to incur another $1000 in attorney fees. The listing agent or seller can often negotiate some of the fees to be waived.
Upon approval of your short sale, your Escrow Officer should always review the approval letter against the HUD, along with the terms of the purchase contract. Especially verify that the terms of the first loan approval are consistent with those of the second loan approval. Any discrepancies must be addressed immediately.
By and large, I believe short sales are being approved more quickly and with less hassle of late, but every lender and situation does vary. I recently closed a short sale that went from listed, to contract, to short sale approval in under four days!
Disclaimer: A short sale involves legal and financial matters, for which a seller should seek professional advice.
Photo Credit: Jay Thompson. CC Licensed on Flickr