The answer is that it depends, it DEPENDS, IT DEPENDS…the outcome is so varied, it is vital that you work with a specialist who can provide you with a realistic expectation before your go down the short sale route as a buyer or a seller.
The key determinants of how long it will take include the number of mortgages & outstanding liens, delinquency/foreclosure status, other ongoing workouts, bankruptcy filings, servicing company backlog, negotiator workload, investor backlog, BPO agent backlog, BPO quality, homogeneity of neighborhood pricing, buyer offer strength, private mortgage insurance, etc.
To illustrate how a short sale approval can be as fast as 1-2 weeks to as slow as six or more month, I will provide two extreme examples below. On average, the short sale deals that we manage takes 45-60 days from offer to approval.
Fast Example
The entire short sale approval took a little less than 2 weeks to obtain. However, this is NOT typical in the short sale world…thus a dream deal.
Seller has only one mortgage with no private mortgage insurance, no other outstanding liens on the property, and no foreclosure sale date (allowed us ample time to market the property for the highest offer). The mortgage is a conventional loan serviced by ABC and owned by a private investor. The property is located in a neighborhood where pricing is within a tight band and the buyer presented a full market priced retail offer.
The short sale package got on file with the lender within 72hrs of fax submission. There was no need to wait for the assignment of a negotiator as any loss mitigation representative working for ABC can render a decision on the spot, so long as it is within the investor’s guidelines.
The ABC representative decided that an BPO is not necessary for this deal and provided an counter offer to lower the Realtor’s commission by 1%. The Realtors agreed to the reduction and the ABC representative promptly provided the written approval.
Slow Example
The entire short sale approval took more than 6 months to obtain. Unfortunately, this is more common in the short sale world than the previous example…many heartaches and tough battles make this a nightmare deal.
Seller has two mortgages with private mortgage insurance, IRS and HOA liens on the property, and a foreclosure sale date less than 2 weeks away. The first mortgage is a conventional loan serviced by DEF and owned by a government entity. The second mortgage is serviced by GHI and owned by a private investor. The property is located in a neighborhood where pricing varies dramatically and we only had the time to obtain a low ball offer due to the short fuse to the foreclosure sale.
The short sale package could not be faxed in to the first mortgage because the fax server is constantly overloaded. We had to escalate the offer up multiple levels of management in order to postpone the sale date and allow time for a review. We then Fedexed the short sale package and waited another month before the it was finally opened and scanned into the first mortgage lender ’s system. (During this long wait, we found out that there is an open loan mod file and had to work to get the loan mod file closed in order for a short sale file to be opened.)
It took another two weeks before a stage I negotiator was assigned to determine if all required supporting documentations are complete and to order a BPO. Another week passed, before we heard from the BPO agent and scheduled the appointment. It then took two more weeks before the BPO value got back on file with the lender. Phase I complete.
Finally we are onto phase II. Except the phase II negotiator is swampped and has more than 200 files on his desk. It took three weeks to finally get in touch with him and only to find out that the BPO came in unreasonably high despite the listing agent attending the appointment to provide guidance. (This is most likely a result of the wide variance of pricing in the neighborhood. ) Forcing us to dispute the validity of the first BPO by providing our own CMA, listing history, repair estimates, market statistics, etc. It took two more weeks to finally got the negotiator convinced enough to order a second BPO, which took another three weeks to conduct and get the value back on file.
At this point, the phase II negotiator countered the buyer’s low ball offer for $10K more. The buyer reluctantly agreed to the $10K and then the negotiator forwarded the file to the private mortgage insurance company for approval. Two weeks later, we got word that the PMI company is only willing to pay $1,000 towards a $50K 2nd lien. The phase II negotiator then had to forward the file onto the investor (a government entity) for his approval, which we received in writing three weeks later.
In the mean time, we approached the 2nd lien as soon as we got word from the PMI company on the $1,000 payoff in an effort to help expedite the process. Unfortunately, the 2nd lien has charged off the loan as it is negative equity and has become more than 180 days delinquent. So we no longer have the option to work with the loss mitigation department; we now have to deal with the recovery department where collection guidelines become much more aggressive and unreasonable. They demanded 30% of $15,000 of balance in cash or no deal. After much back and forth, we settled on 10% or $5,000 cash to the 2nd lien, whereby the $4,000 shortage had to be paid out of pocket by the seller. Since the seller simply can not afford to do so and the buyer is not willing to pay the $4,000, the buyer then walked away from the contract.
As soon as the first mortgage became aware of the news, they prompty scheduled another auction date, which can only be postponed with a new offer. So, we immediately notified the back-up buyer on the pre-negotiated deal and then submitted his package to the lenders.
Surprise, surprise! Without consulting us, the seller filed bankruptcy right before we get the new short sale approval letters from both lenders…no good reason for the seller’s timing of the filing. Unfortunately, the bankruptcy filing stops all short sale efforts and kicks the file: 1) out of the loss mitigation department into the bankruptcy department at the first mortgage, and 2) out of the regular recovery department into the bankruptcy recovery department at the second mortgage. Which means attorney authorization letter are now needed and all new negotiator assignments are necessary, i.e. a long wait and bye-bye pre-negotiated terms! Luckily, the new buyer was patient and waited out the extra two months for his approval.
However, the work does not stop here. In order to go to settlement, we must get the IRS lien released and negotiate down the HOA lien (to meet minimum net payoff requirements by the first mortgage). Luckily, we were able to accomplish both within the 30 days allowed by the lender from approval to settlement. Otherwise, we would have to secure extensions from both lenders (not a guarantee at all). Unable to obtain those extensions, would mean having to start all over with a third buyer! Yikes!
Departing Thoughts
The long and short of this article is that a lot goes on in a typical short sale deal behind the scene that most agents, buyers, and sellers don’t see and don’t appreciate. Even in the hands of a specialist, things can go off track unexpectely and cause delays and ruin a perfectly good deal. Tacking on inexperience (avoidable mistakes), it is not surprising that nationwide short sale success is less than 15%! It is vital that you seek out a trusted short sale specialist – our track record of success is in excess of 85%!
