Tiffany Osterli, REALTOR® - Bringing Your Dreams Home

Yuba City, Marysville, Plumas Lake, Sutter, Live Oak, CA Real Estate and Homes for Sale

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How To Do a Short Sale - The Short Sale Process
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Short Sale Alert:  New state law means banks can no longer go after most short sale sellers. To read more, visit the SB 458 Short Sale Deficiency Legislation page.

How To Do a Short Sale in Yuba City, Marysville, Plumas Lake, Live Oak, Chico, or Sutter, CA (and Neighboring Areas)

If you own a home in California and are considering a short sale, you may find the following information about the process useful.  If you are looking for informaion on what a short sale is, why you might consider one, or why the bank might approve one, you may want to check out our page, "About Short Sales." If you need additional information, you may use the form below to send us an email with your specific question(s). Please note that every short sale is unique.  The following description is meant to provide an overview of the typical short sale process, as well some pointers that can increase the likelihood of short sale success.  Not all steps will always occur in this exact order, nor will they all apply to every situation.

  1. Do your homework.  Every short sale should begin with a well-informed decision.  Before attempting a short sale, we highly recommend that you consult a qualified professional who is experienced in all facets of the short sale process.  Though a short sale is often a good alternative when the homeowner is experiencing a hardship and the mortgage is underwater, it is not always the best course of action.  A professional REALTOR® with local market expertise and a depth of experience negotiating short sales involving different banks, mortgage scenarios, hardships, etc. can often help you avoid pitfalls that can lead to foreclosure and/or ruin your credit.  Take advantage of this experience in determining whether a short sale is right for your situation.  This is also a good time to consult a qualified tax professional to determine the impact of a short sale on your income taxes.

  2. Choose your REALTOR®.  Remember, not all real estate agents are created equal.  Some have extensive experience negotiating short sales.  Others do not.  Watch out for the "one-hit wonders" – those agents who have successfully completed one or two short sales and now think they know everything there is to know about the process.  The top three criteria you should consider when choosing an agent are:
    • Short sale expertise – not only should your agent have extensive short sale experience, but he or she should also have a proven track record of success.  An agent may have listed 20 short sales, but if he or she has successfully gained bank approval on only three of those transactions, it could hardly be said that he or she is an expert.  Ideally, your agent should have successfully listed and sold at least five short sale properties in the last year and at least one of those should have been with the same bank that services your loan.
    • Local market expertise – your agent should be very knowledgeable about local market conditions.  This is critical, especially when establishing the asking price.  A price that is too high will result in little or no interest in the property and no offers being received.  There must be at least one acceptable offer for negotiations with the bank to even begin.  On the other hand, a price that is too low could cause the bank to deny the short sale, or at the very least, delay the process unnecessarily.  There is no substitute for local market knowledge.  Ask each prospective agent how long he or she has served the local market and whether he/she is a full time or part time agent.  The agent you choose should be a full time agent with at least 2-3 years experience serving the market where your home is located.
    • A great support system – the short sale process can be demanding and time-intensive.  Even the best agents get sick, take vacations, spend time with their families, etc.  Your agent should have a support system that is able to keep your sale moving forward seamlessly in the event that he/she is temporarily unavailable.  Real estate teams provide an excellent support system for their member agents.
  1. Gather documentation.  Remember that every short sale is unique.  Not all documents will be required for every sale.  Your agent will be able to help you identify the paperwork that you will need to have readily available.  Common documents you will likely need include:
    • Mortgage statement(s) – the latest statement for your loan (and your second loan, if you have one)
    • Bank account statements – the two most recent ones
    • Income documentation – the last two months worth of pay stubs, retirement distributions, disability payments, etc.
    • Income tax returns – the last two years' federal tax returns
    • Proof of hardship – the bank will require a letter of explanation describing the hardship you are facing plus any documents that prove the legitimacy of your need to sell your home.  Hardships can be due to financial changes, divorce, forced relocation (such as military deployment or employer reassignment), etc. 
    • Authorization to negotiate on your behalf – the bank will also require a letter authorizing your agent to negotiate on your behalf.
  1. List your home for sale.  Once all documents have been gathered, your agent should list your home for sale on the local multiple listing service (MLS).  It is important to have all documentation ready prior to listing your home, because once an acceptable offer has been procured and the bank has been contacted with a request for a short sale, there will be a fast-approaching deadline by which the bank will require all documents to be submitted, typically as a single package.  If the required documentation is not presented by the bank's deadline, they will drop your file and force you to start the process again, wasting both your and your agent's time.

  2. Initiate the transaction with the bank.  Your agent will assist you in contacting your bank's loss mitigation department to initiate the short sale transaction.  This is a critical step during which an experienced short sale agent can be a true godsend.  Getting the bank to acknowledge receipt of your short sale request and assign a negotiator to your file can be a tedious process that can be thwarted by overburdened customer service representatives, flooded fax/email servers, or plain old incompetence.  A veteran short sale agent will know exactly what to do and when to do it to ensure that your short sale request makes its way into the bank's system.

  3. File review and negotiations.  This phase includes all of the activity that takes place between the time the bank acknowledges receipt of the short sale request and the day the bank issues a short sale approval.  It is often the most frustrating time for sellers, especially if the agent representing them doesn't know what to expect or how to determine whether a short sale is still progressing.  During this time, there are many activities that take place, but progress is not always evident.  Depending on your bank's internal processes, the negotiator they assign to your file, and any number of other factors, the amount of feedback provided to you, the seller, can be agonizingly inadequate.  A good short sale agent will know when to leave the bank alone to process your file and when it is okay to press them for a response and/or updated information on the status of your transaction.

    A few of the many things that can occur during this phase are receipt of counter offers, negotiation with junior lien holders (i.e., second mortgage companies), processing of the buyer's loan paperwork, determinations of the bank's and your eligibility for government assistance programs, such as the federal Home Affordable Foreclosure Alternatives (HAFA) program, verification by the bank of your home's current market value, etc.

  4. Escrow.  Escrow is the process by which a neutral third party oversees the fiscal aspects of the transaction, such as coordinating funding, holding of deposits, reconciliation of fees, commissions, and payoff amounts, payment of property tax bills due, and investigation of title to the property (identifying any liens or clouds on title that need to be dealt with in order to successfully transfer title at close of escrow).  The escrow officer is the person responsible for ensuring that all interested parties adhere to the agreed-upon terms of sale.  In California, escrow is typically handled by a title company.  Escrow occurs simultaneously with many of the other sale-related activities and is typically opened (started) around the time your home is listed for sale.  Your agent will open escrow for you and work with the escrow officer throughout the process to ensure a smooth transaction.

  5. Closing.  Once all of the terms of the purchase agreement have been satisfied and any liens and/or clouds on title have been extinguished, the escrow officer will record the transfer of title with the county and your short sale will be complete.
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