Borrower (a/k/a Seller) selects a Short Sale Broker to represent them - This is the most important step in the process of ensuring a short sale will be successful. There is no shortage of real estate agents that can claim they are able to help a seller facing foreclosure, however, less than 2% of the licensed real estate agents in the profession actually have a proven success history in getting short sales approved on a consistent basis. In the short sale process, the lender will typically require the borrower and the Short Sale Broker to sign an Arm’s Length Affidavit, stating the borrower and Short Sale Broker have no personal relationship with each other or to the buyer. With this affidavit, the lender is typically acknowledging they will not pay a real estate commission to a seller or buyer of a short sale (as the lender technically pays the real estate commission by reducing their mortgage to allow for all costs of sale). In this case, even if the seller or buyer of a short sale holds a real estate license, they should select a Short Sale Broker to represent their best interest, as they will typically not be compensated for representing themselves in this process.
Going on the market - With a short sale, the property being offered for sale is sold “As Is”, whereby the borrower (a/k/a Seller) is not expected to make any repairs to the property, even if the buyer needs to do so in order for the buyer to obtain financing. Initially, the borrower’s lender will require the borrower to sign a “Release of Authorization” acknowledging that their Short Sale Broker has their authority to communicate with the borrower’s lender on their behalf. With this, the Short Sale Broker will advise their client (the borrower) what is needed from their lender to proceed with the process. As different lenders have different requirements, it will be important for the Short Sale Broker to stay on top of communication with the borrower and their lender on an ongoing process. During the initial process of marketing the borrower's property, it is important that the Short Sale Broker obtain a title search on the borrower’s property and understand the approximate payoff amounts of all liens, so they can strategize how and who the property will need to sell to ensure all the objectives are met to complete a short sale.
Seller agrees to a sales contract - Purchase offers are presented on the borrower’s (a/k/a Seller) property through their Short Sale Broker. The borrower ultimately selects the offer to sell their property and can maintain possession of their property until closing. It is important that the offer the borrower selects is in their best interest and is also strong enough to allow the short sale to be approved. It is the Short Sale Broker’s responsibility to evaluate every offer received and advise their client (the borrower) what could be the best possibility for them.
The lender makes a decision - The offer the borrower (a/k/a Seller) accepts is processed by the Short Sale Broker along with a short sale package to the borrower's lender. The lender will evaluate the short sale package and offer price. Typically the lender will have their own independent appraiser evaluate the borrower's property (referred to as a Broker's Price Opinion) and come up with a decision.
Let’s come to an agreement - If the lender is in agreement with the short sale package and purchase price, they will typically issue a Short Sale Approval Letter, stating the terms they are willing to accept to complete a sale. These terms include the time in which they want the sale to close, if and how much financial relocation assistance they will offer the borrower, and if they are waiving their deficiency judgment to complete the short sale. If the borrower is not comfortable with any of the terms, it is time to discuss this with their Short Sale Broker to negotiate an agreement. One scenario could be that the lender may not be willing to waive their right to a deficiency judgment, however is open to negotiating an amount at which they will agree to do this and how that can be paid. If the lender does not accept the short sale, then discovering what the lender will accept is imperative in the re-negotiating process with the buyer or even a different buyer to consummate an agreement.