What Is the Standard Short Sale Procedure?
Question: What is the Standard Short Sale Procedure?
A reader asks: "We have finally decided to sell our home. We don't want to walk away from our home, so we listed with an agent who is doing a short sale for us. She came over and picked up a bunch of papers from us. She also asked us to sign a third-party authorization for the bank. But now what happens? She says we need to find a buyer, but I thought we asked the bank to do a short sale. Do you get a buyer first or ask the bank to do a short sale first? I don't know if our agent has done very many short sales, and this is making me uncomfortable. What is the standard short sale procedure?"
Answer: It is not uncommon for an agent to claim to be a short sale specialist when the agent has managed only a handful of short sales. It's not that your agent is lying to you; it's that the agent believes doing 2 or 3 short sales makes that agent a specialist.
And, quite frankly, with the amount of time it takes to do some short sales, it's not unusual for an agent to end up thinking she has spent more time working on that short sale than she has spent. In her mind, she is a specialist. In the minds of agents who close 50 or 100 short sales a year, she is not a specialist.
Whom Should You Hire to Do a Short Sale?
The first thing you should do is hire a short sale specialist to handle your short sale. That person could be a real estate agent or a lawyer. Most agents work on commission, paid from the proceeds of sale, and most lawyers are paid in advance directly by the seller. Whether you hire a lawyer or an agent to be your short sale negotiator, always get legal advice.
Some lawyers, just like some real estate agents, can claim to be a short sale specialist yet be stretching the truth a little bit. It's hard to know whom to trust. A good rule is to ask around for a referral. Surely, someone else you know has an excellent reference for you. You cannot be too careful when you choose a short sale agent or a lawyer.
Is it Standard Procedure to Ask the Bank for a Short Sale Before an Offer is Received?
In a nutshell, no. But just because standard procedure for a short sale might involve first receiving an offer, it doesn't mean that a seller should always follow standard procedure. There are sometimes exceptions to the rule.
The standard procedure can vary from bank to bank. It is your bank that sets the standard procedure, and each short sale bank can be different. Generally, when you ask the bank for a short sale prior to an offer, you are letting the bank set the rules and procedure for you. Most important, you are letting the bank choose the sales price. That might work against you.
Standard Procedure for Short Sale Preapproval
Some short sales banks -- notwithstanding a Freddie Mac HAFA short sale, for which standard short sale procedure is only preapproval -- prefer to preapprove your short sale. If they don't expect preapproval, they at least expect to be involved in the sales price and marketing of your home. Typically, neither is a good idea.
If you let the bank choose the asking price, the price could be too high. If your price is too high, buyers might not make any kind of an offer. It is also possible the bank will price the home too high in hopes that you will eventually give the bank a deed-in-lieu of foreclosure.
Banks won't always come right out and tell you they doesn't want to do the short sale. Sometimes, they will simply force you to price it in such a way that it will not sell.
Standard Procedure for Short Sale Approval After an Offer
The most common way to do a short sale is to submit the third-party authorization to the bank as soon as your home is listed for sale. Then, after you receive an offer, submit a short sale package to the bank, along with supporting documentation and your offer.
This procedure puts you in control and not the bank. Ask yourself, haven't the banks done enough damage? Following are the documents to send to the bank:
- Purchase Contract
- Copy of Earnest Money Deposit
- Buyer's Proof of Funds
- Buyer's Preapproval Letter
- Signed Third-Party Authorization (in case the first copy was misplaced)
Each bank has its own requirements, and they continually change the documents they require. It is common to request your 2 last tax returns and 2 months of bank statements and payroll stubs. But some banks such as a Bank of America Cooperative Short Sale might not even require those documents. Your short sale specialist, if indeed that person is a specialist, should know.