Short Sale Timeline: How Long Will A Short Sale Take?
The most frequent search term used to locate my short sale website is “Short Sale Timeline“. According to my website’s analytics people from all over the country are searching for information pertaining to the length of time a short sale takes to complete. While I provide a general time breakdown of short sales in my article located at http://sdshortsaleattorney.com/short-sale-timeline-how-long-does-a-short-sale-take-to-complete/ I think it is necessary to provide some updated information regarding short sales. First, short sales do not happen overnight. They take time. Much more time than a standard equity sale. Short sales require an additional, time consuming, step I will call “Lender Approval”. Lender Approval is when the short sale is evaluated by the homeowner’s lender to ensure that the offer is acceptable to the lender’s investor. There are several stages within the Lender Approval process that are necessary before the lender will issue an approval.
One of the most important parts of the Lender Approval process is “Property Valuation”. Property Valuation is when the lender hires a 3rd party real estate broker or appraiser to provide them with an independent opinion of value. The lender could use an automated valuation module (“AVM”), order a Broker’s Price Opinion (“BPO”) or order an appraisal. BPOs are used the majority of the time. BPOs are completed by local real estate agents and are usually more accurate than AVMs and much more cost effective to obtain than appraisals. The goal of Property Evaluation is to ensure that the submitted short sale offer is at, or close to, Fair Market Value (“FMV”). The lender has an obligation to the investors of the note to obtain an offer as close to FMV as possible. Waiting for the lender to order a BPO and to receive the results back typically takes 1-3 weeks.
Document Collection is also part of the Lender Approval process. In order to approve the short sale, lenders typically require the homeowner to fill out short sale request forms and submit financial documents. The length of time the Documentation Collection process takes depends on how quickly the homeowner and the selected real estate agent take to return the required documentation. This period of time could take a few days or a few weeks.
The Negotiation process takes places after the lender has received the results of the Property Valuation as well as all of the necessary documentation needed to process the short sale. During Negotiation, the short sale negotiator will review the offer price to determine if it is within the an acceptable range of the FMV. If it is not, the lender will counter the offer price during this time. The lender will also review the HUD to determine what expenses are and are not acceptable. Lenders will typically only allow expenses which are absolutely necessary for the sale of the property and will rarely allow such things as a home warranty or Section 1 termite expenses to be paid out of the proceeds of the sale. Negotiation of the short sale is a back and forth process that can take anywhere from 1-3 weeks. Real estate agents that are experienced at negotiating short sales are better able to prepare an acceptable HUD that lenders are more willing to accept.
The Lender Approval process culminates with Investor Approval and Issuance of the Approval. Most of the time the lender is not the investor of the loan. The lender is merely servicing the loan for a 3rd party investor. The lender reviews the short sale package, obtains the Property Valuation, collects the necessary documents and then negotiates the terms. Once all of this is completed the short sale file is submitted to the investor for approval. Most of the time this is a formality. However, sometimes investors are more involved and will thoroughly review the file and reject the lender’s negotiated terms and counter with their own. Although this is rare it does occur. Once the investor agrees to the terms the lender will issue Short Sale Approval and the short sale will then move into Pending status. The time period for obtaining Lender Approval can take 1-3 weeks on average.
As I pointed out in my previous article referenced above the average short sale takes, from beginning to end, 4-6 months on average. There are factors that can affect that time frame. One factor is if the property has multiple lien holders. If the homeowner has a 2nd lien or even a 3rd the time frame could be extended because each of those lenders has to go through their own short sale process in order to issue an approval. Many 2nd and 3rd lien holders will not even begin reviewing the short sale file until an approval has been issued by the 1st lien holder. Sometimes real estate agents can run into problems when the 1st lien holder requires approval from the junior lien holders before reviewing for the short sale. These situations can be extremely difficult to overcome by the average short sale because it creates a textbook “Catch 22″ situation. Another factor that could delay the short sale process is if the homeowner has any judgment or HOA liens on the property that need to be negotiated. In order for a short sale to be completed title must be clear of all encumbrances. Dealing with judgment and HOA liens could take weeks, or months, to deal with.
I must also point out that if your loan is serviced by Nationstar the estimated timeline for short sale completion could be increased by as much as 1-3 months due to the fact that Nationstar requires nearly every one of their short sales to be run through the Auction.com process prior to acceptance. The Auction.com process is used by Nationstar on the pretense of verifying the FMV of the property. However, it is a laborious process that is difficult to navigate through. So if you have Nationstar, you should plan on an additional month or 2 for short sale approval.
I will stick with my original time frame of 4-6 months for a short sale to be completed from beginning to end. Is it possible that a short sale could take less time? Of course. However, based upon my extensive experience negotiating short sales I stand by my 4-6 month timeline. A piece of advice. If you want to short sell your home find an experienced real estate professional to help you, preferably a real estate agent that is also an attorney. I might be a little biased but I am fully aware of what obstacles arise during a short sale and what my abilities are to overcome these obstacles. I know that many of the short sales that I have completed were only completed because I had to put on my metaphorical “Attorney Hat” to resolve the outstanding issues.
Once a short sale has been approved and a formal short sale approval has been issued the sale is just like any other sale. Escrow opens and the typical time periods apply.
If you are seeking to short sell your house and you are located anywhere in Southern California please call my office at 760-692-5950 or email me at Michael@MichaelGaddis.com If you live in San Diego, Riverside, Orange, Los Angeles, Santa Barbara, Ventura or San Bernardino Counties I can help you. When short selling your house do yourself a favor and get the best.
A Recipe For disastor: Short Sales & HOAs
For most homeowners, the decision to short sell is made only after an extensive amount of intense internal turmoil. Usually, homeowners decide to short sell only after realizing that fighting for a loan modification is futile or that, under their circumstances, that any resulting loan modification will not be in their best self-interests. Short sales are difficult emotionally for homeowners. Most have put enormous amount of time, money and sweat into their home. Once the decision to short sell is made most homeowners are quick to “circle the wagons” and start preserving as much money as possible. Many quit attending to maintenance issues, quit paying property taxes, quit paying for insurance and some even quit paying their homeowner’s association (“HOA”) dues. Homeowner’s rationalize all of this because they are not getting any money out of the sale of their home so the best way to recapture lost investment is to stop paying for ancillary costs related to the home. Of all of the things that a homeowner could stop paying perhaps one of the more challenging ones is HOA dues. Since 2009 HOAs have taken a beating from homeowners who have decided to stop paying. Many HOAs were forced into insolvency and many others were on the verge of going under. Homeowners that continued to pay their homeowners saw the effects of their HOA’s financial stress through deferred maintenance of common areas, raised HOA dues, closure of non-essential HOA maintained areas (pools, spas, clubhouses, etc.), etc. Homeowners who were at odds with HOA for failure to pay their monthly fees typically received fines and penalties for other issues related to deferred maintenance of the property as well. Homeowners would have a “add it to my bill” mentality. HOA bills that would have been $15k for past due HOA dues became $27k due to fines for things such as failure to maintain landscape, failure to repair a fence, failure to move a satellite dish, parking an RV or trailer in the driveway, etc. All of these fines added up to a monstrous past due HOA bill. For years HOAs sat back while accounts receivables increased.
HOAs attempt to exact revenge when homeowners attempt to short sell their home. First, HOAs can provide a financial obstacle to a successful short sale. Typically, the HOA will have filed a lien against the property thus ensuring that their spot in line. They must be dealt with. Sometimes 1st and 2nd lien holders will agree to pay off the HOA from the short sale proceeds. However, fewer and fewer lenders are agreeing to pay the HOA. The lenders are forcing either the buyers or the homeowners to rectify the HOA issue. Second, HOAs are no longer just sitting around waiting for the house to foreclose or for the homeowner to start short sell. Instead, HOAs are pursuing foreclosing on their interests. HOAs theorize that if they foreclose on the house and become the legal owners of record, they could evict the non-paying homeowner and then rent the house out for as much as possible to begin recovering their past due HOA payments. The HOAs understand that the senior lienholders could still foreclose thus extinguishing their legal rights but the HOAs are banking on being able to rent out the property for as long as possible. Third, if the homeowner is foreclosed on by the first lien holder the HOA will continue to pursue the homeowner for any past due HOA payments.
HOAs can be difficult to deal with when attempting to short sell a property. The best advice is to continue to pay the HOA throughout the short sale process. Paying the HOA will cause less problems and stress in the end. The small amount of money that can be saved by not paying the HOA is not worth the headaches that the HOAs can cause.
Jenny Winford July 23rd, 2017
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