Short Sale Basics for Homeowners
A short sale occurs when a bank agrees to accept a payoff that is less than the mortgage balance. For example, if a homeowner has a defaulted mortgage loan with Wells Fargo in the amount of $200,000, but the property is only worth $160,000, Wells Fargo may allow the homeowner to sell their property to a qualified buyer for the current value of the property and, in some cases, forgive the amount on the unpaid balance.
Homeowners can benefit from completing a short sale in the following ways:
- Be completely freed from an unsustainable mortgage payment
- Rebuild credit more quickly
- Qualify for a new mortgage sooner
- Avoid foreclosure
- Tax exemptions (consult tax attorney)
Short Sale Facts and Figures
- Homeowners who go through foreclosure must attain a 680 credit score, make a 20% down payment, and wait five years in order to qualify for a new home loan. Homeowners who go through a short sale need only wait two years and do not have to attain a minimum credit rating or minimum down payment (Fannie Mae)
- Banks stand to lose as much as 30-60 percent of the outstanding loan balance on foreclosed homes (Mortgage Bankers Association)
- In the state of Washington, short sales outnumber the bank-owned properties nearly two to one (Better Properties Real Estate)
- Only one third of bank foreclosures are listed with a Realtor in the state of Texas
The Short Sale Process at the Bank
Buyers may wait a very long time to get a response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process. Buyers may get so tired of waiting for short sale approval that they may feel the need to threaten to cancel if they don't get an answer within a specified time period.
That type of attitude is self-defeating and will not speed up the short sale process. If buyers are the type with little patience, perhaps a short sale is not for them.
Following is a typical short sale process at the bank:
- Bank acknowledges receipt of the file. This can take 10 days to a month.
- A negotiator is assigned. This can take 30 to 60 days.
- A BPO is ordered. The bank probably will refuse to share the results of the BPO.
- A second negotiator may be assigned. This can take another 30 days.
- The file is sent for review or to the PSA. This can take 2 weeks to 30 days.
- The bank may then request that all parties sign an Arm's-Length Affidavit.
- The bank issues a short sale approval letter.