Short Sales: Why They Can Take So Long

Home Foreclosures
By Brendon DeSimone

When buyers hear the term "short sale," they typically think about distressed sellers and good deals -- especially in markets where prices have ticked upwards. But the word "sale" can be misleading. In fact, many real estate agents have renamed "short sales" as "long-and-drawn-out sales." Here's why short sales often take a long time to complete.

Banks and Bureaucracy: In a short sale, you need the seller's bank to approve before you can close. Banks require dozens of pages of paperwork to evaluate whether or not to approve a short sale. Since the seller is asking the bank to accept a sale price that's less than the mortgage amount, the bank needs to verify that a short sale is the right thing to do. Banks want to make sure the seller is indeed unable to stay in the home and can't afford to pay off the difference between the market value and the bank's loan amount.

Just as a bank scrutinizes a buyer's finances in order to approve their loan, the financial institution wants to closely examine the seller's finances to be sure that it is not giving its money away. With many thousands of dollars at stake, banks don't want to rush through this process. By comparison, when you're buying from a person, he or she is more motivated to keep things moving.

Paperwork Gets Lost in the Process: Banks require many documents, disclosures and signatures to complete a short sale. Many times they request that they are faxed in. If just one signature or page is missing from a file, the bank will likely hold off on the process until the file is complete. Given that these banks are losing money on short sales, they don't allocate the same amount of resources they would to the customer service department for paying (and profitable) customers. With limited staff and so much paperwork, things get lost -- and then the short sale process drags on.

Two Lenders = Double the Time: Many times a short sale seller has two loans. The larger loan is being shorted while the second, smaller loan -- usually a home equity line of credit -- is being completely wiped out. Often, these loans are with two separate banks. Each bank has its own system that doesn't in any way communicate with the other bank's system. The second bank may approve the short sale but put on a 30-day expiration. If the first bank's approval comes at day 31, the seller must go back to the second bank and start over. As you can see, this too can drag out the short sale.

How to Expedite a Short Sale: Is it possible to work the system and speed up short sales? Absolutely.

If you're selling a home as a short sale, don't use an agent who doesn't not have short sale experience. There are so many areas where short sales can get tripped up, so look for an experienced agent who knows how to push through the process. If you're a buyer and you found a short sale home you love, determine if the agent is an expert in short sales. If the agent doesn't have much (or any) short sale experience, expect a long, rocky road.

Short sales are a different animal from traditional home sales -- from how they're priced, how they're marketed and the lengthy sales timeframe. A savvy short sale agent will know exactly what they're dealing with and what to expect, and can shorten the process immensely.

For more strategies about how to buy short sales and distressed properties, read Brendon DeSimone's new book, "Next Generation Real Estate." Brendon's practical real estate advice is regularly sought out by print, online and television media outlets including FOX News, CNBC, USA Today, Bloomberg, FOX Business and Forbes. A licensed Realtor and an active investor himself, Brendon owns real estate around the U.S. and abroad and is licensed to sell in California and New York. Consumers often call on Brendon for advice and to help them find a real estate agent. You can follow him on Twitter or Google Plus.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow or AOL.

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The bank has absolutely no incentive to move short sales along efficiently. Most banks are "servicers". In many cases, they no longer "own" the loan. They continue to service the loan but another "investor" actually makes the decision as to how much they will accept for the property. These investors have purchased the paper at a discount (usually as part of a bulk/package deal for dozens or maybe even hundreds of property's). The bank must go back to the ultimate investor for final approval of the offered amount and that can take time.

The process has a basic flaw in that in most cases, the first step in the process is to find a buyer for the property at "some" price. The big flaw in the process is that the seller and/or agent doesn't know what price the investor will ultimately approve. So, there is this VERY in-efficient process of "... let's submit it and see what the Investor comes back with as their minimum acceptable amount." Then the seller/agent must go back to the investor and justify why that minimum acceptable selling price needs to be even lower. Things could go a lot faster if we knew what the minimum acceptable number is to start with. After the acceptable price negotiation between the new buyer and the investor is reached, the process can goe pretty quickly.

Also, it is best if the property is vacant, winterized (if necessary) and secure so that there is no delay in removing a tenant once an acceptable amount is offered and accepted.

September 22 2014 at 10:01 PM Report abuse rate up rate down Reply

There is a major flaw in this article, banks do not own the loans they are processing a short sale. (For the most part) The scam #1 was they took sub-prime loans, packaged them, and then sold them off as AAA loan package. So why do they not want to process short sales? Scam #3 banks make money to process foreclosures. Money they do not make if the property is sold and short selling is a sale not a foreclosure. Banks, or better called mortgage processors, have contracts with the loan owners that cover loan servicing and foreclosures pay well. Thus they make good money if the loan is paid but if the loan is not paid the next best paycheck for the banks is foreclosure. People need to open their eyes and follow the money. Banks only make their decision when the money is the most favorable. Scam #2 deals with Credit Default Swaps which explains why the government bailed out AIG and then AIG took the billions and paid off the banks on the bad loans the banks no longer owned. This was done just to keep the banks afloat on their bad investments in credit default swaps. The bailout had nothing to do with homeowners and mortgage loans. They have pretended to have modification programs that hardly anyone qualifies for and once again banks make more money from foreclosures and make little or nothing from modifications.

August 04 2014 at 7:11 PM Report abuse rate up rate down Reply
Shapna Patel

Usually, a short sale is really a very big process to perform. Because, as a borrower, you need to get approved from your lender for short selling your house. Then you need to wait for a right borrower to sell your home with the help of right short sale specialist.

July 09 2014 at 1:27 AM Report abuse rate up rate down Reply

terr end..larymay@aol

June 19 2014 at 11:27 AM Report abuse rate up rate down Reply

Can a realestate broker sell the same home to same person after 1st escrow closed for $148,000. then the former owner bid on her own property, and agent called my friend and said someone else bid on property. I think it important to mention the former owner filed for debt relief and won. She said she had been off work taking care of elderly mom. When in fact her mom lived with me...i cared for her several yrs and recieved no pay.Now they increased price of house from $148 to $185 plus 20k...give in 2009 towards old owners debt, i think.

Any help would be grately appreciated. My friend who bought this has had heart faiulure last yr...was in ICE in induced coma, i cant explain whats gone on to her.

June 19 2014 at 11:26 AM Report abuse rate up rate down Reply