Buying A Short Sale Home?

What is the process?

1) Write and offer but make sure to insert language into the contract stating that “Contingent on Seller’s mortgage holder’s approval”

2) Lenders typically require the Short Sale to be sold “as is” to not be threatened with a potential closing with repair items. Language should be inserted into the offer in that regard, either with an appropriate addendum or under additional terms.

3) The Seller may counter but the contract is between you and the Seller, no the lender. The Seller would not want to submit an offer to the bank if it knows it will be rejected and/or counter-offered because of a low price or has too many closing costs on the Seller’s side. The lender pays these costs and will analyze the “net”. The lender will want to minimize the loss as much as possible.

4) After the contract is signed and agreed by both you and Seller, it will be sent to the Seller’s Lender or Lenders if there is more than one mortgage holder. Documentation submitted with the contract includes an estimated net sheet, buyer’s approval, proof of funds letter, listing agreement, Seller’s financial worksheet, recent bank statement, hardship letter, last year’s tax returns and recent paystub.

5) The Seller’s Lender will then order an appraisal or Broker Price Opinion of the property.

6) The Seller’s Lender will counteroffer with the appraised value.

7) You will then accept or counteroffer this amount. The offer will usually be rejected if it is not at at least 83% of the appraised value. The lender makes it decision based on the requirements of the end-investor mortgage regarding price. There may also be PMI or Private Mortgage Insurance on the loan, which means the PMI company will also order a separate appraisal or BPO. The offer needs to satisfy both lender’s requirements. If there is a 2nd mortgage on the property, the 1st mortgage will offer the 2nd mortgage holder a dollar amount “buy out”. In addition, the lenders may request the Seller for a Cash contribution or promissory note. If the Seller cannot comply, you may be asked for additional monies to make up some of the difference.

8. The timeline for initial response from the eldner may be 12 to 16 weeks due to the lenders receiving a high amount of sellers requesting a Short Sale. Some of the bank representatives may have as many 400 files at a time. They will usually work on the files that are facing imminent foreclosure sale dates first.

9. After approval by the lender, an “approval” letter is sent to the Seller. The letter will state when the closing will occur. You are expected to have your mortgage, insurance and inspection completely in order.

10. The lender expects to see a copy of the settlement statement at least 2 days prior to closing to make sure it is accurate.

11. Congrats, it’s is done!