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

The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines, but the basic procedure is similar from bank to bank.

A few examples of a hardship are:
Unemployment / reduced income
Divorce
Medical emergency
Job transfer out of town
Bankruptcy
Death

The seller’s short sale package will most likely consist of:
Letter of authorization, which lets your agent speak to the bank.
HUD-1 or preliminary net sheet
Completed financial statement
Seller’s hardship letter
2 years of tax returns
2 years of W-2s
Recent payroll stubs
Last 2 months of bank statements
Comparative market analysis or list of recent comparable sales

Writing the Short Sale Offer and Submitting to the Bank

Before a buyer writes a short sale offer, a buyer should ask his or her agent for a list of comparable sales.

Banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to market value.

The short sale price may have little bearing on market value and may, in fact, be priced below the comparable sales to encourage multiple offers.

After the seller accepts the offer, the listing agent will send the following items to the bank:
Listing agreement
Executed purchase offer
Buyer’s pre-approval or proof of funds letter and copy of earnest money check
Seller’s short sale package.

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.
A negotiator is assigned.
The bank orders a valuation of the property.
The file is sent for review or to the investor.
The bank may then request that all parties sign an Arms-Length Affidavit.
The bank issues a short sale approval letter.

Some short sales get approval in 3 weeks. Others can take as long as 12 months. A typical Short Sale transaction takes 4-6 months to complete.

Short sales are notorious for their duration to close. It was only years ago when we saw short sales take sometimes up to 2 years to close, causing insurmountable stress to all parties, especially to the seller. So why do short sales take so long? One could easily blame the banks for the delay. However, that accusation does not apply to most banks in 2013. Systems have been upgraded, buyers are buying, and incentives to short sell for both banks and sellers have boosted. So why would a short sale take so long?

Homeowner Motivation

We set expectations from the beginning with all of our clients. A short sale is great deal for the homeowners but it will require about 90-120 days of effort to get the job done. Agent’s who have done short sales will know this. Homeowners who delay in submitting requested documents are the ones who end up prolonging the deal longer than it should and/or losing their home to foreclosure. The lack of motivation on the homeowner’s part will diminish the motivation of the other players.

Who are these other players? The banks/lenders and the buyers.

Bank/Lender: If you’ve ever dealt with them via a loan modification process, you will know they need accurate documents in a timely fashion. Documents have an age. They will ask you to resubmit your paystubs or bank statements if they are outdated. I’ve heard many files closing because of the lack of recent seller documentation.

There could also be two liens meaning you will have to submit the package to two banks and deal with another party. Often times, the second lien is not easy to deal with because they typically receive a much smaller payoff.

Buyers: A couple of years ago, the buyers were one of the most difficult parties to retain in a deal. Buyers are much more motivated now because of the low inventory but put yourselves in their shoes. You have money (cash or preapproved) and you have opportunities around you. There is usually an emotional tie into buying a home. If you have to wait more than 3-4 months on a home, how likely are you to lose that emotion and run off to another opportunity during those 4+ months?

Short sales are like a 3-4 month boot camp. We have been fortunate with our clients thus far but we’ve also set expectations from the beginning. Agents, please show your clients this article before starting them off on a short sale or you could easily waste 4+ months of time, energy, and money. Article here:

The listing agent is another player and is the most important one and as you can read in my many articles, I have high expectations for them.

Hope this helps

Peter from www.seattleshortsaleblog.com