Short Sale Process
The short sale process is complicated and I am going to break it down so that it is easier to understand. There are many steps that the homeowner and their Realtor have to take in order to meet the bank’s requirements…
1. An honest assessment of the owner’s financial situation - If the owner has more assets than liabilities, they may not qualify. Generally speaking, everyone else does.
2. An honest assessment of the property value - Part of the Realtor’s job is to determine the most likely price a buyer would pay for a property. A smart agent, who knows short sales, will take the lowest comparable home in the area that has sold in the last 3-6 months and knock 10% off to come up with the listing price.
3. Screen offers properly - If the listing is priced properly, expect a few showings every week. You should also receive an offer or two. Unlike a conventional Real Estate transaction where the property owner has equity and sells the property for the highest possible price so that they can take home the biggest check possible from the closing, a short sale is not sold at the top market price. Banks know that you have to sell it for less than you owe and they are willing to look at all offers. The trick for you is in discerning which offer to take. The highest priced offer is not necessarily the best offer for the owner. The best offer would be the one that has a highly qualified buyer. This may be a cash buyer or a typical financed buyer. Make sure your Realtor does a great job of assessing the quality of the buyer. The worst thing that could happen is the deal falls apart right before your auction because the buyer’s financing fell through. This can be prevented by pre-qualifying the buyer. Don’t worry about price much, let the bank tell you if they will take the offer or not and go from there.
4. Submit offer - Your Realtor will take the offer that you have decided to accept and submit it to the bank with the full package of information that you should have signed before the property went on the market. I.E. – Authorization letter, hardship letter, financials, etc.
5. Wait a few days for the bank to receive the offer and assign a loss mitigator.
6. Your Realtor or their coordinator should follow up on the offer to make sure they have received it and get the contact information for the loss mitigator.
7. Your Realtor should make sure that a BPO (a mini-appraisal done by a 3rd party Realtor) is ordered by the bank. The BPO agent is the bank’s most trusted source to decide the real value of the property.
8. Meet the BPO – Your Realtor should meet the BPO Realtor at the property when they do the appraisal. BPO agents usually get paid around $50 to do this. Their whole goal is to get as many done per day as they can. This means they fly through the property. They know nothing about your property and your Realtor who knows the details like repairs needed, roof damage, contractor estimates, mold in the corner, and any other issue that the BPO agent will not see can be explained by your Realtor. This is important because if the BPO agent has too high of an opinion of the value of your property, the bank will assume that the offer your Realtor brought them is too low and will close the file and you will have to start over.
9. Realtor follows up on the BPO results – A BPO agent is not allowed to disclose their opinion of value to your Realtor but if your Realtor calls the bank up and asks, they may tell them. They usually won’t but at a minimum, your agent needs to make sure it was complete and submitted so that the process moves forward efficiently.
10. Get negotiator’s contact information – Your bank has a hierarchy of employees who handle these short sales. The lowest on the totem pole is customer service. Next in line is the loss mitigator; it is their job to save the negotiator time. Then, is the negotiator. This is the person who will make the deal. After the negotiator has put a deal together, they will report to their manager. The title of this person is usually “Asset Manager”. This is the person your Realtor or their coordinator should strive to talk to. In small banks, the asset manager is usually the only one involved. For the sake of these steps we are discussing, it is important for your agent to be working with the negotiator as soon as possible.
11. Find out if the negotiator has accepted the offer – If not, they may make a counter offer. If not, ask your agent to get the buyer to make a higher offer and then take that back to the negotiator.
12. Payoff letter – Once the negotiations are complete, you should expect to receive a payoff letter. This is the golden egg. This letter states that they are willing to take less than what is owed and shows in writing the amount they have agreed to take. VERY IMPORTANT – make sure there is language in this letter that states they are waving their rights to a deficiency judgment. In Illinois, it is rare that a lender will go after an owner for a judgment in this economy, but you need that layer of protection in case they change their minds down the road. Seek legal and tax counsel on this topic, it is very important.
13. Move – Once the payoff letter is in place, you need to find somewhere else to move to or move your business into. Usually, the closing happens about 30 days after the payoff letter is received.
14. Closing. You are all done once you leave the closing table. Make sure your Realtor is pro-actively coordinating the closing between the day of the payoff letter and the day of closing so that the closing happens. The payoff letter has an expiration date. If that day comes before it closes, you will have to start all over.
One important tip to always keep in mind when you are IN foreclosure: keep an eye on the auction date. Make sure that you have a qualified offer in prior to 7 days before the Sheriff’s Sale. Most of the time, it is too late for a bank to work with you if you are that close to the sale. Talk to a knowledgeable Realtor or Short Sale attorney about how to postpone the auction: it is possible to get the courts and/or the bank to move the auction date back.
As you can see, this process is out of the box and complicated. The bank typically requires that you have a Realtor list your property. This is one instance where the consumer actually gets bailed out. You will not have to pay your Realtor any commission or other fees, you will save a good deal of your credit, and you will get rid of bad debt. What a deal, huh? Finally, something for nothing!
This whole process typically takes 6 months or so. A good, educated Realtor/Broker should be able to get it all done within 4 months. Trends are changing every day and that is not the rule, but if you pick the right agent, you should do great. To find the best agent google “McHenry Foreclosure Expert” or other similar keyword phrase. A great resource to get your questions answered and potentially find your agent is Active Rain.
If your property is in the McHenry area, contact me now and I will work with you to get this resolved. You never pay any fees with me, the bank pays me a commission. My number is 847-629-5400 and my email is nick@nickgraff.com.
Hope this helps,
Nick
