Short Sale SellersWhy Do Banks Take So Long?
It seems that the most common complaint today with short sales, is why does the bank take so long? This question is heard over and over with Realtors and homeowners and homebuyers are anxiously asking this question repeatedly to Realtors who really don’t have much control over the process.
From a banks standpoint, they are under no obligation to approve a short sale. What? Really? But what if they are going to lose a lot of money if they don’t short sale the property?
Well, first lets go over the short sale process. A homeowner usually wants to request a short sale when they owe more than what the property is currently worth in this real estate market, making it very difficult to sell to cover loss plus Realtor commissions. Traditionally a homeowner would agree to pay back the difference between what is owed and the sold price. The seller would sign a new, unsecured promissory note at closing to promise paying the bank bank in monthly installments. This wouldn’t be a case, where the debt is “forgiven” due to a true financial hardship, because it that case…the homeowner would have no way of paying back that difference.
In today’s market, most homeowners/sellers are able to take advantage of receiving debt forgiveness and even a temporary tax exemption on top of that.
So, can’t anyone do a short sell then? First you’ll need to figure out why you have to do a short sale. And if you are a buyer of a short sale, you need to find out how is the homeowner asking for the debt difference to be taken care of – are they employed and able to pay back the difference? If the seller is asking for debt forgiveness, the short sale make take a bit longer to approve with the bank or lender, especially if the bank doesn’t have all the required documentation to approve the sale.
What’s in favor of most sellers now, is that banks really don’t want to own your home. That’s not what they are in business of doing. If the homeowner defaults on the home and it goes into foreclosure, it will cost the bank quite a bit in legal fees to foreclose the house and usually a short sale could yield cheaper results. If the homeowner has not defaulted on the loan, the bank will have little motivation to approve the short sale. (Make sure to consult an attorney if you are considering selling a short sale or are in default).
To prove that a seller can do a short sale, they must prove that they do not have the money to make up for the shorted difference. To proof to the bank, homeowners must submit bank statements, tax returns, W-2’s, and other documents to verify that the homeowner has no additional money.
Now, here’s the tricky or lengthy part of the transaction process. Even if the bank approves the short sale, there may be a number of investors who own a piece of the mortgage loan(s) and each investor has to give their approval for the short sale.
Unfortunately a very low percentage of short sales are approved but with due diligence with all parties involved, that percentage can increase over the next few months and keep homeowners from having to foreclose on a home they could have quickly sold via a short sale.
Tags: debt forgiveness, foreclosure, promissory note
