…Continued from Part I.

The short sale process begins by listing the property with a real estate professional at fair market value. Once an offer has been accepted by the homeowner, the real estate professional will send the offer to the bank with an estimated closing statement from a local escrow company, a short sale package from the homeowner (hardship letter, W2s, bank statements, financial statements, tax returns, and in some cases a DNA sample). Once the bank receives the short sale package a negotiator is usually assigned to the file, which can take a few months. The negotiator is responsible for reviewing the file, ordering a B.P.O. (Broker’s Price Opinion – much like an appraisal), and then typically sends the package to the investor, who makes the decision to accept, counter-offer, or reject the offer. Once the bank has issued a written acceptance (be sure to obtain a copy of the written acceptance), it’s off to the races.

Although escrow has been opened since the homeowner accepted the offer (months ago), the clock doesn’t start ticking on the buyer’s contingency period until the bank issues written short sale approval (confirm that your real estate professional added a short sale addendum with the original offer). The buyer’s contingency period is typically 10-14 days after short sale acceptance. Once contingencies (typically loan and inspection contingencies) have been removed it’s up to your lender (unless it’s a cash deal) to fund your loan, and then the escrow company coordinates with the county recorder’s office to record a deed of trust in the homebuyer’s name, and finally escrow closes and the buyer takes possession of the property. The pitfalls of a short sale are the length of time it can take and the possibility that the seller’s credit may be affected depending on how the bank reports the short sale to the credit agencies.

In the other corner of the ring, standing stout and glaring at its opponent with no mercy, is the dreaded “F” word (Foreclosure). This typically takes place when all other avenues have been exhausted and the homeowner has not made a payment for 90 days or more, which is the catalyst for a bank to issue an N.O.D. (Notice of Default). Unless the homeowner can come up with the money owed, the bank will evict the homeowner, take possession of the property, and then attempt to sell the property on the court house steps or at an auction. However, if the bank cannot sell the property on the court house steps or at an auction it will typically hire an R.E.O. (Real Estate Owned) real estate professional to list the property on the M.L.S. (Multiple Listing Service). The pitfalls of a foreclosure are that it will affect your credit for 7-10 years.

Read Part I of this post here.

Posted By: Doug Hecker