Why Do Short Sales Take So Long?
Why do short sales take so long? It’s a question I often hear from clients who are considering buying a property in a short sale.
Short sales happen because the loan amount on the property is higher than the sale price minus all the sale expenses. In a short sale, the seller is asking the bank to take less than the amount owed.
Here’s a look at why short sales can take so long.
1. The seller’s bank must review the package
In order to approve the sale, the lender requests a complete short sale “package” from the seller. The lender wants to see the seller’s debts and assets, review their credit score, and their contract to purchase the home. A good listing agent will have the short sale package ready in advance.
2. Documents get lost, pages go missing, signatures go unsigned
A short sale package typically contains hundreds of pages. Many require signatures from buyers, sellers, and agents. If one page is missing or one signature left blank, the entire document doesn’t get processed. While this is bad enough, too often the listing agent will fax in 100 pages and just wait for a response. Sometimes it will take a month to hear back from the bank when they find something missing. That’s why it pays to be proactive. Get your listing agent to call the bank after submitting the short sale package, especially if sent by fax.
3. Documents can get quickly outdated
From the time the documents get “processed” and when the information hits the desk of a negotiator, who actually reviews and negotiates the sale, weeks can go by. Does one of your bank statements arrive at the start of the month while the others come at the end? That one bank statement may soon be outdated and the bank will require an updated one. Review the statement dates on each credit card and bank statement so you’ll know if a new one will arrive soon. If so, send it to the lender immediately.
4. The lender asks for more information
The lender may ask to see the buyer’s proof of funds, review the preliminary title report or request further verification of the seller’s hardship (job loss, divorce, job transfer). So you should be ready to respond, because a delay could add a few more weeks to the process.
5. Complications from two loans
Short sales are hard enough with just one bank. Imagine two banks, each with its own processes, and neither one cooperating with the other. It could set you back months.
6. The deal might collapse at the last minute
Once the bank has a complete package and you get a negotiator on the phone, you’re close to the end—but not quite there. The negotiator may counter the buyer on price. Or they may only approve the sale if the seller contributes money. They could always ask for the commission to be lowered. Any of these might kill the deal at the last minute, and you can’t anticipate exactly what the negotiator will ask for. That’s why it’s key to not accept a low offer and think the bank will simply approve it.
7. Foreclosure trumps everything
Sometimes the foreclosure department at the same bank does not work in conjunction with the short sale department. There may be a good offer on the table for a short sale, but the seller is six months behind on payments, causing the foreclosure process to kick in. When this happens, the buyer no longer has a deal on the table. The seller, forced into foreclosure, is no longer the seller—the bank is.
How you can speed up a short sale
The best way to expedite a short sale is to be certain the seller’s real estate agent is experienced with short sales. If the agent isn’t experienced in short sales, the process can likely drag on and on.