What is a Short Sale?
Posted by Gregg Camp on Wednesday, November 11th, 2009 at 7:21pm.What is a Short Sale?
By now, most people have heard of short sales. Many even know what they are. However, there are many intricacies in a short sale.
Let's start with the basics. In today's market, most homeowners are upside down on their homes. That means that the value of the home is below what the homeowner owes on the home. Using basic numbers, if you owe $100k on your home, if your house is worth less than $100k, then you can either a) come to the closing with money or b) seek short sale relief.
The process can be quite in-depth. In many ways, it's like you're qualifying for a mortgage. It's a funny idea because we're mostly in this mess because lenders didn't do real qualifications the first time around. Most lenders will require the following items:
- Last two months bank statements
- Last two years tax returns
- Last two paystubs
- Letter of Authorization for your agent to speak on your behalf
- Hardship Letter detailing why you need relief
- Purchase contract
- HUD1 statement detailing what lenders will receive at close
Most lenders refuse to accept any of the previous documents without a purchase contract. That means that we generally list property at slightly below market value with the hopes of getting an offer very quickly to expedite the process.
Once we receive a contract and submit all the necessary documents, the bank(s) will order a Broker Priced Opinion (BPO). This is simply an appraisal done by a real estate agent instead of a regular appraiser. It can take anywhere from five days to two months for the bank to get this done. Often, this BPO can make or break a short sale deal.
When there are more than one lender on a deal, then these processes must be performed with each lender. Many times, second lien holders will want anywhere between $1500 and 10% of loan balance. The second lien holder can also kill a deal. They can be the classic cutting the nose off to spite the face type of person.
All of this can seem quite cumbersome. Fortunately, banks are starting to open their eyes to what they need to do to stem off future foreclosures. When this market first turned down, short sales would close 1 in 10 times. These days, about 45% get approved.
Gregg Camp
831-818-7524
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