1. Insider’s Guide to Success with Short Sales
Date:October 28, 2011 Author:Brendon DeSimone
Many real estate agents steer their clients away from a short sale because they think they take too
long, that their commissions will be lowered, or simply because they don’t know a lot about the
process and what it takes to get a short sale completed successfully.
There are multiple steps involved in a short sale. If you’re a buyer or seller today, it’s helpful to
understand the entire process from the inside out. Here are 10 things you should know about
short sales.
What exactly is a short sale?
A short sale isn’t a foreclosure, and the property may not be anywhere near the process of being
foreclosed upon. In a short sale, the seller needs to sell their home for a variety of reasons — job
transfer, divorce, lost job, inability to make payments, and so on. The current market value of
their property is less than what they owe the bank because its value has declined; the seller took
out additional loans against the property; or both.
To complete the sale, the seller needs to go to their mortgage lender and ask permission for the
bank to take less than they are owed — to get “shorted,” in other words.
In my experience, most banks actually want to work with the seller and approve the sale, as
opposed to having to foreclose on the property. If the seller falls behind on their payments and
the property heads for foreclosure, the bank ends up owning the property. This forces the bank to
be in the business of owning real estate, which isn’t what it’s set up to do, and that costs them
time and money.
The bank’s perspective
Imagine if you were owed money by someone and they came to you and asked to pay you back
less. You wouldn’t be too happy about it and would only go along with it kicking and screaming,
right? Well, the same is true with lenders when a customer needs to sell their property in a short
sale. They don’t want to lose money, and they’re going to make sure that a short sale is the best
of the worst-case scenarios they’re facing. In doing so, the banks have processes and procedures
in place, some more bureaucratic than others. They’ll want a review of the seller’s finances, to be
certain they truly can’t afford the payments and that their reason for selling is legitimate.
What does the bank want to see?
In order to decide whether you want to take this financial hit, the bank will require the seller to
complete a short sale package, much like a loan pre-approval package when you purchase a
home. The package includes (but isn’t limited to): a financial worksheet completed by the seller;

2. the past few months bank statements; last two years tax returns; the last few pay stubs; copies of
equity/brokerage accounts; and a hardship letter laying out the seller’s case for the short sale.
Additionally, the bank will want to see a purchase agreement, proof of buyer financing,
authorization to speak to a third party (namely the listing agent) as well as a HUD-1 — a
closing/settlement statement that lays out the finances of the sale. Finally, the bank wants to have
the property appraised to confirm that they are receiving the most money for the home.
Short sale review process
Nearly every bank has a team of “negotiators” who are assigned to review each short sale
application and make a decision. It’s rare that they will accept the short sale package as is. More
likely, they’ll ask for a number of things including a counter offer to the purchase price and a
reduction in fees/closing costs. If they lower the listing agent’s commission, it’s almost always
reduced below 6 percent (but rarely below 5 percent). Often, the bank will ask the seller to make
a financial contribution in order for them to approve the sale. This is generally OK with the
seller, and often the seller can agree to a payment plan. Everything is a negotiation here, and the
listing agent is generally the one negotiating with the bank on behalf of the seller.
The seller is often required to miss a payment
Many banks will require the seller to miss a payment in order to process the short sale. In
essence, the bank is rejecting the short sale and telling the seller to come back and reapply after
they’ve gotten behind in their payments. This happens all the time. If you’re a seller with perfect
credit but circumstances require you to sell the property as a short sale, the bank wants you to
pay for it by negatively affecting your credit with a 30-, 60-, or 90-day late payment.
This is the most troubling, misunderstood, and backwards part of a short sale and part of the
reason why they take so long. This will likely set the seller and the potential buyer back by at
least 30 days, and the buyer often walks away, sometimes after waiting 60 days.
If you want to avoid this roadblock, start missing your payments as soon as you know a short
sale is inevitable. Yes, you heard me right: I’ve literally advised sellers to stop making their
mortgage payments.
Facing up against a foreclosure
This is where things get messy and timing is everything.
If you miss your payments for 90 days, a notice of default is filed and the foreclosure process
begins. The foreclosure department is likely a completely different arm of the bank and does not
always have any knowledge of the short sale offer. Sometimes, they’ll work hand-in-hand to
delay the foreclosure if a short sale application is in. But, many times, especially if they are so
disconnected, the foreclosure department simply forges ahead. I have heard horror stories about a
full price short sale offer on the table, yet the bank forecloses.

3. Have your ducks in a row before going on the market
Prior to listing the property in a short sale, request a copy of the short sale package from the
lender. Start with the customer service telephone number; they can usually get you in touch with
the loss mitigation department. Find out what’s required to complete a short sale and get
everything that the bank needs up front.
A good real estate agent will have every single piece of information available and ready to send
to the bank before they list the property. Once an offer is received, they can add the purchase
agreement and the closing statement to the package. Short sales take a long time when the seller
or real estate agent have an offer but don’t have any of the paperwork ready to send to the bank.
If you’re a potential short sale buyer, ask the listing agent if they’ve made contact with the bank.
Have they received the short sale package? If so, are the seller’s documents ready to be
submitted? If the answers to these questions are no, or are received with a blank stare, chances
are you’re going down a long and rocky road.
Additional places the short sale gets hung up
The banks require a lot of paperwork in order to present the short sale to the negotiator. If they
don’t have an absolutely complete package, they won’t send it on. This means that if you’re
missing one document or one bank statement has the wrong date, there will be a hold up.
Also, even though it’s 2011, many banks require the packages to be faxed into their system. This
means lost pages or missing documents. And the bank, as busy as it is, isn’t likely to call you and
tell you what you’re missing. So the listing agent or the seller needs to stay on top of the bank.
Once the package (sometimes 185 pages) is faxed in, a call should be made confirming the fax
was received. Within a few days, another call should be made to ensure the package has been
assigned to a processor. The processor’s job is to provide the negotiator with everything needed
for review. Check with the processor, to see if they’re missing anything and if not, how long it
will take to be assigned to a negotiator. Most banks will tell you five, 10, or 21 days. Staying on
top of the bank will help speed up the process. As the saying goes, the squeaky wheel gets the
grease.
Final step is getting the approval
The waiting game begins once the file is complete and is on the desk of the negotiator. At this
point, there is nothing you can do but wait for their decision/negotiation. Once the approval and
all the negotiating has been completed, the regular sale/escrow process begins. Be aware that the
bank prefers these to be “as-is,” so there won’t be room to add fees, request credits or
adjustments. Having said that, I once went back to a short sale lender and requested (and
received) a $20K reduction in purchase price due to some serious termite issues that were
uncovered during the property inspection.
Advice to buyers, sellers and agents

4. Whatever role you’re playing in the short sale drama, be patient but persistent. I’ve seen short
sales approved in less than 30 days, others in nine months. It all depends on the bank, the seller
and the listing agent.
And if you’re the potential buyer, try not to get too attached to a short-sale property. If you don’t
get a sense that the listing agent is familiar with the process, or if you realize the agent and seller
don’t have their ducks in a row, you may need to walk away — no matter how good of a deal the
short sale is.
Brendon DeSimone is a Realtor and real estate expert based in San Francisco and New York. He
is a contributor to Zillow Blog, has collaborated on multiple real estate books and is often
quoted by major media outlets. Follow Brendon on Twitter.
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.