How long will it take for a short sale approval?
Definitely one of those questions that many buyers and sellers are asking. When we first began riding the wave of short sales in 2008, lenders were simply not prepared for the high volume of requests. But as we move through the housing market crash, lenders have staffed up, developed departments and professionals and we are beginning to see improvements in the short sale approval process. However, there are a lot of variables in how long it will take to obtain short sale approval when buying for selling a home. Here are 10 reasons why a short sale approval can be delayed:
1.) Who is the bank and/or lender?
Some banks are simply better at the short sale approval process than others. Wells Fargo, Chase, and Bank of America have seemingly put the most effort into streamlining the process. Bank of America utilizes EQUATOR (an online transaction management system) and this has definitely helped in reducing the amount of duplicate requests for paperwork. Wells Fargo and Chase have implemented fast track processes where they don’t require complete financial package documentation if the seller has already attempted a loan modification.
2.) Has the seller submitted all the paper work?
Some sellers are not at good at record keeping and many times, bank statements, pay stubs, and tax returns take time to locate and submit to the lender. The lenders want all pages and sometimes sellers simply throw documents away. Requesting back statements and copies of tax returns can take time. Sellers may also have to provide copies of divorce decrees, alimony and child support statements and all of these documents must be updated at the time an offer is presented to the lender for approval and every 30 days after.
Every lien must be negotiated in a short sale. This can be mortgages, HOA (Home Owner Association) dues, tax liens, personal tax liens, mechanics, and utility liens (like garbage or electric). Liens are negotiated by position. The senior lien holder gets to decide how much the junior lien holders will receive from the short sale. This is where conflicts can arise. Property tax liens take seniority over mortgages as do personal tax liens, child custody and the like. Many lenders will not pay back HOA dues or penalties and attorney fees related to delinquent bills. The higher the number of liens, the harder and longer a short sale approval can be for all involved.
4.) Is/Are the mortgage(s) is a portfolio lien or an investor(s) held lien?
Many loans were made and then sold in bulk to 3rd party investors. If the bank/lender actually kept the loan and did not sell it to another bank or investor, it is considered a portfolio loan. If the loan is held by the lender you only need the lender management to agree to the short sale. If there is an investor, state entity like Cal HFA, federal entities like Fannie Mae or Freddie Mac, or mortgage insurer involved, approvals can take longer.
5.) Has the lien been discharged?
If the lender or investor has already “written off” the loan as bad debt it is typically sold to a credit collection agency for pennies on the dollar. Collection agencies are very common for HOA past due amounts. Since the collection agency has paid for the debt based on a recovery amount in mind they can be challenging to negotiate with when it comes to short sales.
6.) Does the short sale seller qualify for HAFA?
HAFA is a great government program attempting to bring some standardization and incentive to the short sale process. HAFA (Home Affordable Foreclosure Alternative) provides cash to the lender and the seller to complete a short sale but the program is voluntary. Many of the big lenders like Bank of America have outsourced the HAFA files to third parties and unfortunately they are not always as organized and appropriately staffed to handle the volume. Again, it is a voluntary program and investors do not have to accept the HAFA terms of a short sale. Sometimes the question; Does it qualify as a HAFA short sale? – takes longer to obtain than the actual standard short sale approval. However, it does provide a $3,000 relocation assistance to the seller and this can be very important to help sellers move out of the home they are losing.
7.) Are the real estate agents involved experienced, organized, diligent, communicative, and polite?
It is so very important the agents involved in a short sale are the very best professionals. It takes solid experience to know which short sales are likely to succeed and which ones will not. If the listing agent is not upfront about the sellers situation and poorly organized in the short sale package, the buyer can be waiting a long time simply to find out there is no deal. Equally, if the buyer’s agent is encouraging buyers to write multiple offers with no real intent to work the deal, sellers can find themselves pulling all of it together for the lender only to find the buyer cancels before a short sale approval is issued. The short sale process takes commitment from everyone involved to be successful. Short sales make up nearly 30% of all homes for sale in the Bay Area and only 3 out of 10 actually close. Ask your agent a lot of questions about their experience, their strategy, and their commitment to the short sale process before selling or buying a home.
8.) Is the buyer’s agent setting proper expectations with AS IS, market value, and timeline?
Short sales are almost always AS IS. Many buyers obviously do not want to invest in inspections before knowing their offer has been approved by the short sale lender. However, an experienced real estate agent can help a buyer anticipate items like termite repairs, roof age, broken furnaces and the like before inspections are ever complete. Do a thorough walk through of the home before writing an offer on a short sale and calculate a guesstimate on repairs. Have a contractor walk through with you if possible. Check light switches, flush toilets, turn on the furnace or AC, look for damaged wood and the like to get a good idea of repairs. Make your offer based on the current market value minus repairs cost. Take pictures, write it up and have the agent submit with your offer. All good short sale agents should be supporting listing price/offer price with market activity, photos, and repair lists. Nothing is more wasteful then to have a offer fall out because of repairs that could have been anticipated and written into the offer prior to submission to the lender for approval.
9.) How many humans are involved with the file?
People make mistakes, lose paperwork, make the wrong decisions and all can go to Hades in a hand basket. The volume of short sales is staggering with any of the major lenders. Short sale agents that are good may have taken on too many short sales and can’t keep up with the volume of paper work and constant contact needed to take each sale to close. Fax machines are still in use by many of the lenders and we all know how it goes when faxing 25 pages and page 6 doesn’t make it. Electronic faxes and files are helping but there are lost pages out there. Departments don’t always talk to each other and I have seen homes foreclosed upon when the short sale approval was in process and even approved. Short sale approval letters seem to come by slow boat and many times the anxiety of waiting can challenge the most zen-like person’s patience. Some agents use 3rd party vendors to “manage” their short sales. They charge the buyer or the buyer’s agent a fee to do this and I totally disagree with this practice. A short sale listing agent can either pay the fee for shifting the work of phone calling everyday to someone else or handle the process themselves. But charging the buyer or buyer’s agent is wrong in my book. In my humble opinion, those who manage their own short sales are better and more motivated to make it happen and all incentives should be provided to keep the buyer committed to the process.
10.) How many months has the seller missed paying their mortgage?
This is a big one that is many times over looked. Latest statistics tell us that the average home owner has lived in the home 375 days without making a payment before foreclosed upon. The more payments missed, the less likely the short sale will be approved. The more payments missed, the more steps are taken toward foreclosure. Notice of Default and Notice of Trustee sales are legal actions taken against a homeowner in default. Sometimes, the train has left the station and is there no way to stop the foreclosure. Buyers and buyer’s agents should always find out which if any of these notices have been served and whether or not they have been placed on hold. Some lenders will not approve a short sale within 20 days of a Trustee Sale.
There are many questions to ask when pursuing a short sale. Whether you are a buyer or seller considering a short sale, make sure your agent can give you the right information to make the right decision. As a Certified Distressed Property Expert (CDPE), Certified Short Sale Negotiator (SSN), HAFA Certified Specialist (CHS), and an experienced, committed professional with success closing short sales transactions for sellers and buyers, I am here to answer any of your questions about the short sale process. If you would like to talk about your options regarding the selling or purchasing of a short sale home, contact me for a no-obligation consultation.