|Short Sale Guide for Home Owners|
Short Sale Process - Nevada
Traditional Home Sale Process
If you have sold a home in the past, the diagram below should look familiar and shares many common elements with the short sale process. So, for most home owners, this serves as the best baseline for understanding the short sale process.
Short Sale Process
The short sale process is similar to the traditional process diagram in the section above EXCEPT the seller's financial situation and the purchase contract need to be approved by the seller's lender(s). As you can see below, there is now a new step in the Carson City short sale process which occurs upon acceptance of a purchase offer. Generally speaking, the "active escrow" activities such as buyer financing, appraisals, home inspections, title report reviews, etc. do not begin until after the seller's lender has issued a written approval.
Lender Approval Activities & Issues
For a successful short sale, the seller's lender (could include a 1st lender and a 2nd lender if the home has a second mortgage or Home Equity Line of Credit) must approve BOTH the seller's financial situation as well as the purchase price/terms of the Carson City short sale contract. If the home seller can not justify a hardship situation due to issues such as job loss, income loss, unaffordable payments, job transfer requirements, etc. combined with a lack of assets to potentially "float" the seller through this difficult time, the short sale will not be approved. After the seller's situation is reviewed and deemed satisfactory, the lender will focus on the sale price and terms. All lenders request a short sale package to conduct this review.
The Short Sale Package
The collection of documents submitted to the lender for review is often referred to as "the short sale package". While this varies from lender to lender, most lenders will require the following documents:
- Authorization letter allowing real estate agent and/or short sale processors to access information for the seller's account
- Signed and dated financial worksheet listing all financial assets/liabilities and monthly income/expenses
- Hardship letter outlining why mortgage can not be paid
- Income verification documents - paystubs, etc.
- Two consecutive monthly bank statements
- Two years of tax returns
Real Estate Documents - From Agent
- Signed listing agreement
- Net sheet/ HUD-1 Statement
- Signed purchase contract between buyer(s) and seller(s)
- Buyer pre-qualification letter or proof of funds if cash offer
- Recent comparable sales analysis
A short sale real estate agent should provide you with the specific requirements from your lender as part of the process. This package of documents should be submitted to the lender by the short sale real estate specialist immediately upon completion of a signed purchase contract for the home. Once submitted, the short sale agent should confirm with the lender that the package has been received and is complete. An incomplete package or a package sent to the wrong contact can add unnecessary delays to the approval process and could jeopardize the short sale being approved entirely.
Upon receipt of the package, the lender will:
- Assign a Negotiator (the standard title for a lender employee who coordinates short sales)
- Order a BPO (Broker Price Opinion - a report documenting the value of the property)
- Submit the short sale package and BPO results to "REVIEW" (inside, outside investor)
Lender Response - More Negotiation?
After Review, the options for a response could be one or more of the following in a variety of combinations:
- Counter Offer on Price/Terms to Buyer
- Approval with Promissory Note - from Seller
- Approval with Cash at Closing - from Seller
NOTE: during this back and forth negotiation between the short sale REALTOR, the lender, and the buyer's agent, language regarding a release of any deficiency judgment should be negotiated into the approval letter to protect the seller from being pursued for any deficiency amounts.
Written Lender Approval
If the Seller and/or Buyer are able to reach agreement with the lender on all terms, the lender will issue a written short sale approval letter. The Short Sale Approval Letter generally contains the following:
- Short Sale Letter Terms - typically a 1 to 2 page letter stating approval with very specific terms such as costs the lender will/won't pay, maximum amount of commission to be paid to real estate brokers, close of escrow date, minimum net proceeds to the lender, release language, and buyer's name are the key points.
- Arm's Length Affidavit - This document will be require signed/notarized signatures from both buyer and seller to confirm that the transaction is "arm's length" - see FAQ for more on this topic.
- Promissory Note - If required by the lender and agreed to by the buyer, the promissory note is usually a separate document that must be signed by the seller.
- Assignment of Unearned Insurance Premiums - Generally a separate document, this form ensures that any monies held in an impound account that are not used by close of escrow are returned to the lender, not the seller.
Upon receipt and approval of this letter by the Seller, the transaction moves to the "Active Escrow" phase and, for the most part, will proceed like any other escrow provided all of the terms and conditions are in compliance with the short sale approval letter.
There are some additional documents such as estimated closing statements or HUD-1 statements that the short sale agent will be delivering to the lender (likely prepared by a title company) at each point of negotiation and up to the short sale transaction close of escrow.
FHA Loan Requirements - Short Sale Process
If the home owner has an FHA loan (FHA loans have become very popular since 2006 due to a lower down payment requirement - 3.5% compared to conventional loans), the process is, yet again, a bit different. The Department of Housing and Urban Development (HUD) has developed a "Preforeclosure Sales Program" that has specific guidelines and procedures.
Below are two resources which are published by HUD which outline requirements and common questions about this program:
Short Sale Process (HAFA)
If the short sale seller wishes to purse a HAFA (Home Affordable Foreclosure Alternative Program) short sale, the process is, again, slightly different. The major difference in the HAFA short sale process is the lender pre-approves the seller's financial position and the home sales price the lender is willing to accept. Ideally, this pre-approval takes place before a purchase contract is signed. By shifting these approvals to occur before an offer is accepted, the time for final approval (provided the price and terms are equal or close to the pre-approved amounts) should be less than 30 days and have much more certainty of getting finalized.
Benefits of a HAFA short sale:
If you qualify for a HAFA short sale, it is the preferred way to approach the transaction. The lender must offer a HAFA short sale program (not required) and you must meet the qualifications - the first and most important being the property is a primary residence.
- Lenders are prohibited from pursuing a deficiency judgment against the homeowner, or of requiring the homeowner sign a promissory note for unpaid balances.
- Pre-approval of short sale pricing and terms.
- Pre-determined cash incentives to Homeowners ($3,000) and Lenders/Servicers to encourage short sale over foreclosure.
- To facilitate cooperation between 1st and 2nd mortgage holders, the US Treasury Department contributes money to the 2nd Mortgage payoff by matching $1 for every $2 paid by the 1st Mortgage holder to the 2nd.
Notice: The information on this page pertains to the state of Nevada. This information is drawn from recent short sale real estate transactions in Carson City, Reno, Sparks, Dayton, Minden, Gardnerville, Genoa (Carson Valley), and Lake Tahoe as well as multiple national resources, banks, and government agencies. This information is subject to change at anytime and while, believed to be accurate, is not guaranteed. Short sale real estate brokers who specialize in Carson City are not qualified to give legal or tax advice and home sellers are advised to seek independent professional legal and tax advice.
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