Let’s start by revisiting the definition of a Short Sale (which appears on the Home Page of this website). In the eBook,
Foreclosure Alternatives: A Guide for California Homeowners,
author F.R. Res defines a Short Sale in the following manner:
“A short sale occurs when a lender agrees to lower a loan balance at the request of the homeowner. The homeowner sells the property for less than the amount owed, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. The lower payoff has to be negotiated and formally Approved by the lender in advance of the sale. The formal negotiation of a Short Sale Approval is conducted through the bank’s Loss Mitigation department and has a much higher chance of succeeding if handled by a professional Short Sale Listing Agent.”
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:
  • Decision
    The seller 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:

    1. Job transfer
    2. Significant financial event
    3. Keeping the home is not in the family’s long term financial interest
    4. The stress of holding on begins to adversely affect the health of the homeowner and/or their spouse
  • Realization
    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.
  • Listing
    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”).
  • Documentation
    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).
  • Analogy
    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 collected 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.
  • Showings & Offers
    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).
  • Presentation & Request
    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.
  • Lender’s Review
    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:

    1. Third Party Authorization is uploaded in the lender’s system confirming the real estate agent’s authority to negotiate on behalf of the homeowner
    2. A formal request for short sale approval, along with all of the required documentation including pay stubs, bank statements, W-2s, Purchase Offer, etc., are faxed, uploaded or emailed to the lender’s loss mitigation department
    3. The lender reviews the documentation to confirm that the short sale package is complete
    4. A Broker’s Price Opinion or Appraisal is ordered to determine the value of the home
    5. The BPO or Appraisal is received back
    6. File is assigned to a negotiator
    7. The home’s value is entered into the lender’s underwriting system
    8. LTV Ratio (Loan-To-Value) is input into the lender’s system
    9. HOI (homeowners insurance review) is completed
    10. Payoff quote is ordered
    11. Payoff figures are input into the lender’s system
    12. Soft credit pull is done to check Seller’s credit score
    13. Foreclosure Value bid is obtained
    14. Banks’s Negotiator must input NPV (net present value)
    15. Bank’s Negotiator analyzes the offer
    16. Bank’s Negotiator issues an acceptance, counter offer, or decline
    17. If it’s an acceptance or a counter-offer, the Homeowner’s Negotiator must respond
    18. If the Homeowner’s Negotiator sends a counter-offer, the Banks Negotiator can accept, reject, or forward another counter
    19. If the Bank’s Negotiator issues a counter-offer, the Homeowner’s Negotiator returns to Step 17. If the Bank’s Negotiator accepts, the Homeowner’s Negotiator waits for completion of steps 20 – 23
    20. The Bank’s Negotiator must now review and prepare the file for final Investor Approval (the Investor is the entity that actually owns the loan—often the bank is just a servicer)
    21. If loss ratio is high, file sent to Executive Review Committee for clearance
    22. If loss ratio is very high file then sent to Senior Vice President for clearance
    23. File sent for outside (Investor) approval or counteroffer
    24. If the Bank’s Negotiator sends a counter-offer, go back to Step 17, if approved the Homeowner’s Negotiator goes to step 27
    25. Investor approval received
    26. Short Sale Approval Letter is received by the agent and the homeowner
    27. The agent reviews the terms of the Short Sale Approval Letter with the homeowner.
    28. The Homeowner signs the approval letter
    29. The transaction closes in accordance with the terms set forth in the approval letter
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.
Name: Email:
Address: Phone:
Message to Real Estate Agent:
We also Specialize in working with:
and many other lenders ...
Click Here To View Recent Short Sale Approvals
Click Here To View Short Sale Forms
Click Here To View Short Sale Lender Packages
Click Here To View California Short Sale Laws
Click Here To Learn About The Short Sale Process