Give Yourself Plenty of Time to List and Sell That Short Sale
By Elizabeth Weintraub,
If you’re thinking about doing a short sale, it’s smart to try to time the listing of that short sale. People are always trying to time the real estate market, and it really can’t be done. But you can be strategic about when you list a short sale.
There is an absolute worst time to list a short sale. That time is a few weeks to a few days before the sheriff’s sale or trustee’s auction. Ideally, you want to be as far away from that date as possible. Because there are too many things that can go wrong in a short sale.
Basic Steps of a Short Sale
- First, you need to find a committed buyer.
- Your agent will send the accepted offer and all paperwork to the bank.
- The bank will screw around for a few months, ask for more paperwork, lose stuff, demand revisions, in general, make your life a living hell as the bank’s collection department continues to hound you.
- Finally, somewhere between 2 to 4 months, on average, you will receive a short sale approval letter from the bank.
- Elated, your agent will notify the buyer, who will have canceled without telling anybody.
- You start the short sale over.
You may think I am joking, and while I have firmly planted tongue in my cheek, this scenario is all too familiar to many of us in the short sale business. With any luck, you have hired a short sale agent who is prepared for disaster and will not give up on you, no matter what.
Because starting over on a short sale is not the end of the world. It only becomes scary if you are behind on your payments. Many short sale lenders will not consider a short sale for a borrower if the borrower is not in default. Whether you should stop making your mortgage payments depends entirely on your lender’s guidelines.
If you are doing a Fannie Mae short sale, for example, Fannie Mae says you must be in default at the time your short sale is granted. Yes, our government is telling homeowners to stop making mortgage payments. It’s disgusting, isn’t it? But Fannie Mae is a government-sponsored entity that is supposed to be making a profit. It is not a non-profit organization.
If you are too close to the auction date, closer to that date than to closing your short sale, the likelihood is Fannie Mae will direct the bank to foreclose and reject your short sale. Therefore, you don’t want to get too close to that auction date. It’s a matter of careful juggling.
On the one hand, you might need to be in default. On the other hand, you don’t want to be so far into default that the bank will seize your home. Every state’s default procedures are different. You should check with a lawyer to find out the default period in your state.
If you stop making your mortgage payments, you could lose your home. It might be wise to keep those payments in reserve in case you need to bring your loan current to stop the foreclosure. However, if you have a lot of money in the bank, you might have a difficult time writing your hardship letter to explain your financial hardship. Unless you are doing a Bank of America cooperative short sale, the likelihood is your bank will want you to prove some sort of hardship.
The Ideal Time to List a Short Sale
You need time to properly market your home for sale, receive offers and to select the best offer to present to the bank. You want a buyer who will wait for approval. Sometimes buyers write offers just to see which offer is accepted first by a short sale bank and that buyer might not be dedicated to buying your home. Not every real estate agent is an honest agent, and an agent might not disclose if the buyer is writing multiple offers.
The best time to list a short sale is to time the listing so the bank receives an offer at a few weeks prior to the official 30-day behind mark. For example, if your mortgage payment is due on June 1, it will be 30-days delinquent on July 1. Therefore, July 1 might be the target date for your bank to review the short sale. If the bank takes 10 days to process the paperwork prior to review, you will want the offer to arrive at the bank around June 18th.
Most banks take 10 days to 2 weeks to pull together the documentation and assign a negotiator to study the file. From that point forward, it can take a few more weeks or months to get approval. Some banks are faster than others. Ideally, you want to leave yourself enough time that if a buyer flaked out on you or a bank required that you perform some other action that eats time, that you have the time to resubmit an offer.
The best time to talk about listing a short sale is before you go into default. Talk to your agent about your bank’s guidelines. You might not need to be in default at all to do the short sale. But if you must in default, then put that home on the market as fast as can you can. Do not wait for a good time. When you’re in default, there’s no such thing as a good time to list a short sale. Just do it.
Brought to you by Ian Lazarus
The Lazarus Team
The Landis Co., Realtors
609-457-0258 direct cell