Before the lender “agrees to lower a loan balance” so the homeowner can sell an underwater home, a series of requirements must be fulfilled. The fulfillment of the lender requirements along with the preliminary steps that must be taken by the homeowner and their real estate agent is known as The Short Sale Process. An outline of the Short Sale Process is set forth below:

The seller’s recognizes the need to sale. For the typical homeowner the decision to short sale their home is difficult, and often undertaken with great travail. It is usually triggered by one of the following circumstances:

The homeowner comes to the realization that the amount owed exceeds the value of the home. Most homeowners are aware of the general value of their homes. Many have contacted an agent like those here at San Diego Short Sale Relief Agents or have logged onto websites like ours and requested a Free Home Value Report. Others are aware of the amount for which a neighbor’s home sold or they’ve tried to refinance and were informed by the lender of their upside down status.

Once it’s determined that the balance owed exceeds the current value, the next step is to contact an experienced short sale agent to list the property (i.e., formally place the property “For Sale”).

Upon listing the property (i.e., formally placing the property “For Sale”) the listing agent will collect a number of documents that must be forwarded to the lender’s loss mitigation department to start the short sale negotiations. These documents may seem eerily familiar to the documents you submitted to the lender when you originally applied for the loan – that’s because they are. In fact, the core set of documents are identical. These include tax returns for the last two years, W-2s for the past two years, bank statements for the last two months and pay stubs for the last two months. In addition to the core financial documentation, the lender will typically also request a financial statement (homeowner’s monthly budget), third party authorization (permission for your bank to communicate with your real estate agent), hardship letter (a statement indicating the change in circumstances that makes it harder for you to make the payment) and a 4506-T (a form authorizing the IRS to release a transcript of your tax returns to the lender).

The easiest way to understand the short sale process is to think of it as a loan approval in reverse. At the time the homeowner purchased the home there was a loan application and supporting documents submitted to the lender. This “Loan Package” was presented to the lender’s underwriting (risk assessment) department. At that time the homeowner was deemed an acceptable risk and a loan approval was issued. In similar fashion, the documents collect by the real estate agent upon listing the home, also known as “The Short Sale Package,” will be forwarded to the bank’s loss mitigation department and will be underwritten again. But this time the objective isn’t to determine that it’s an acceptable risk that leads to a loan approval, but rather just the opposite: When underwriting a short sale file, the evaluation is to determine whether or not the homeowner, because of a change in circumstances, can now afford to keep the home.

Once the property is listed it’s made available for showing to potential buyers and their agents. Buyers will make offers to purchase the property, thereby leading to the homeowner’s acceptance of an offer. This is an important step because most short sale lenders will not review a Short Sale Package unless the homeowner has an accepted offer. From the lender’s perspective, without an accepted offer and qualified buyer on the table, the review of a Short Sale Package is purely an academic exercise – moot. Lenders are typically unwilling to absorb the cost to underwrite a file that has no active chance of closing. NOTE: There are exceptions to this rule. (Incidentally, a qualified buyer is a buyer that has been PreApproved for a loan by a competent, reputable lender, with verifiable liquid assets sufficient to close. If it’s a cash offer, the qualified buyer must have verifiable liquid assets to pay the full purchase price in addition to closing costs).

Once the real estate agent has initiated the short sale and the homeowner has accepted an offer, the required documentation, along with the accepted offer is sent to the lender’s loss mitigation department.

When the file is received by the lender the short sale underwriting review is started. A synopsis of the bank’s internal process appears below:

So there you have it! This is the basic short sale process. The timeline for approval averages 30-90 days. If you have questions or need additional information please complete the inquiry form on this page.