The Basics of a Short Sale

The Process

We believe that we have a short sale process that is unmatched in the industry. From our initial consultation with you through and after the closing, we have a process in place that delivers results and aims to eliminate potential problems.

Here’s our process:

  1. Prior to taking your short sale listing, we collect the “Financial Package” from you, which includes all of the information your bank will request from us.
  2. You list your home with your preferred Listing Agent and the day the home goes in MLS we send the Seller’s Authorization Form to the bank. This document allows us to communicate with your bank directly.
  3. Your Listing Agent markets your property and prices the home at, or slightly below, market value until we get an offer.
  4. We are only looking for ONE contract to send to the bank. We are looking for ONE qualified Buyer with an appropriate offer price who has serious intentions on closing the transaction. If we have this, we will fully execute ONE contract to send to the bank.
  5. Once an offer is received on your property, your Listing Agent will quickly review that off er with our team and then will contact you and send you the off er that was received for your signature and initials.
  6. This offer will have been reviewed to ensure all terms will meet the lenders’ requirements. In some cases, a counteroffer will be generated to ensure the offer meets all necessary terms. It is imperative that you send that contract back to your Listing Agent immediately, as the contract is time sensitive. If you have any questions regarding that contract, please address those with your Listing Agent before signing anything. Upon acceptance, we will also request that you send updated bank statements and paystubs along with the signed contract.
  7. Once the contract is fully executed, we submit the fully executed contract, a HUD-1, and all of your financial documents to the bank to begin the short sale process (60–120 days is the average length of processing time—some are much quicker, some take up to 120 days). Please be patient throughout this process. At times, you may feel things are moving slowly, but remember this is not a regular transaction and we are doing all we can on our end to make things go as quickly as possible.
  8. Your bank(s) will then do one or more valuations on the home to identify what they think the home is worth. Once their valuations are back, they’ll review the offer and all corresponding documentation, and finally issue their decision.
  9. Once the bank accepts the terms of the offer, we’ll issue a document called the Agreement Notice—the notice to all parties that the short sale has been approved. In rare circumstances we will need to go back to the Buyer and tell them why the bank will not accept their offer and give them an opportunity to raise their offer.

The Basics

Banks usually grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.

A few examples of a hardship are:

  • Unemployment / reduced income
  • Excessive Obligations
  • Divorce
  • Medical emergency
  • Job transfer out of town
  • Bankruptcy
  • Death

The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines, however the basic procedure is similar from bank to bank. The seller’s short sale package will most likely consist of:

  • Letter of authorization, which lets your agent speak to the bank.
  • Completed financial statement
  • Seller’s hardship letter  (Signed and Dated
  • 2 years of tax returns
  • 2 years of W-2s
  • Last 2 months of bank statements
  • Recent payroll stubs

The 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.

Some short sales get approval in 6 to 8 weeks. Others take 90 to 120 days, on average.



Definition of BPO

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BPOs are often associated with foreclosures and short sales, but other companies such as relocation firms order BPOs. A BPO stands for “broker price opinion,” and it involves using a process very similar to an appraisal.

Companies hire a real estate broker to prepare an opinion of value. The representative of the broker, generally a real estate agent, compares three similar properties that have recently sold to the subject property and adjusts up or down for differences. The final result in an opinion of market value.

Broker price opinions are sometimes controversial, especially if the agent preparing the BPO has little experience or knowledge about the neighborhood. But BPOs typically cost less than a full-blown appraisal.

Definition of PSA

A PSA is an acronym for Pooling Servicer Agreement.

About two-thirds of the loans made since 2005 have been securitized. Securitization is a process that involves gathering hundreds of loans into one package and selling that package in the secondary market. Often the purchaser is a trust. Trusts are comprised of investors.

After the loans are pooled and sold, the trust hires a service provider to collect monthly payments and distribute that money to the investors. That securitization agreement is called a pooling and servicer agreement or PSA.

Why Does the Bank Require an Arms-Length Affidavit on a Short Sale?