The amount of time it takes to sell a property via a short sale depends on a number of factors, all of which must align to produce a sale. It may take anywhere from a couple of months to well over a year to complete a short sale.
Below are some of the factors:
- The seller’s responsiveness. One of the biggest causes of a delay in the short sale is the seller themselves. Their mortgage lender asks for documentation throughout the short sale process, and many times the lender will ask for updates on paperwork that was already submitted. Many sellers are slow to produce paperwork, either because they are disorganized, emotionally upset, or confused about the nature of the paperwork. The ideal short sale seller responds immediately to requests for paperwork without questioning why the lender wants it.
- The lender’s internal policy. Each lender has its own timeframe for a short sale. They may have a policy on who has authority to advance or escalate the file to the next stage. Many borrowers attempt a loan modification first, and many lenders will not consider a short sale while a loan modification is being considered. In most cases, the lender’s staff is overwhelmed and that delays the process.
- Involvement of other lienholders. If there are multiple lienholders, that might prolong the short sale negotiation because everyone has to approve the sale. In most cases, each lienholder may attempt to limit what the other lienholders receive, which can complicate the negotiation.
- Involvement of a mortgage insurer. If a mortgage insurer is involved, then they have to agree to the amount of the loss that the lender will take. That injects an additional decision maker into the process. The mortgage insurer may have certain rules about what they would approve, and the lender may have to abide by those guidelines.
- Involvement of a Government Service Entity (GSE). If Fannie Mae, Freddie Mac, the Veterans Administration (VA), the U.S. Department of Agriculture (USDA), or the Federal Housing Administration is involved, then they too have to approve the short sale. That injects an additional decision maker into the process, and each entity has their own procedure.
- The type of short sale program. There are federal short sale programs, like the Home Affordable Foreclosure Alternatives (HAFA). There are lender programs, like the traditional short sale and the cooperative short sale. Each program has guidelines on timing. One program may require that the property not have an offer on it yet, while another lender’s program may only consider a short sale if there is a signed contract with a buyer.
- Involvement of a third party vendor negotiating for the lender. Some lenders, particularly Bank of America, like to use third party vendors to help negotiate with the seller. These third party vendors work for the bank and may have their own procedures in addition to the lender’s rules.
- Involvement of a third party vendor or attorney negotiating for the seller. A third party vendor or attorney working for the seller may have their own guidelines. They may only advance the short sale if all paperwork is received from the seller up front.
- The ability of the listing agent to procure a buyer. Even if the short sale approval process is moving along quickly, it is essential to have a ready, willing, and able buyer. Without a buyer, there is no closing. Some properties, such as houses in need of repair, may only appeal to a certain segment of the buyer pool. If a lender pre-approves a short sale at a certain price, but buyers believe that price to be too high, then there will be extreme difficulty in finding a buyer.
- Expiration of the appraisal or Broker’s Price Opinion (BPO). Even if there is a buyer and if the process is moving along quickly, a lender may slow the negotiation because the previous valuation of the property is too old. Some lenders may only consider an appraisal if it occurred in the past three months, while others may only approve a short sale if the appraisal is less than six months old. Also, it may take days or weeks for an appraiser or BPO agent to submit their report.
- The amount of time it takes to prepare a preliminary HUD-1 Settlement Statement. Sometimes a title agent or attorney may not be able to put together the preliminary HUD-1 form fast enough. A lender needs to see a preliminary HUD-1 statement prior to making an approval decision. The title clerk may have insufficient information about the outstanding liens and payoffs to meet the deadline posed by the lender. The lender could arbitrarily close a file if a single document is not received.
- The buyer’s willingness to stay in the deal. Some buyers back out of a short sale even when it is approved. They may lose their ability to obtain financing, or they may find a more enticing property to buy. Some buyers become frustrated and terminate their contract, which may occur mere days before an approval is granted.