Short Sale Process

The short sale process is one of frustration, determination, uncertainty, and high stress.  Below is an outline of what we went through and what I’d do differently next time.

What is a short sale?  Wikipedia defines a short sale as “a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.  Any unpaid balance owed to the creditors is known as a deficiency.  Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.  A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower.  While credit is also typically damaged much less than from a foreclosure, both often result in a negative credit report against the property owner.”

Basically, the person buying the property buys it for less than the owner owes on the loan(s).  It is called a short sale because what the buyer offers “falls short” of what is owed. Our Realtor (and my mother-in-law) says it should be called a “Long Sale” because it always takes so long.  An article I read somewhere (I don’t remember where) referred to the short sale process as the “Wild West of Short Sales” because it is often so unpredictable and never the same way twice.

I’ll start with a timeline of our process:

  • Sometime in Jan 2012     Found a farm house we really liked.  It was in pretty good shape when you first looked at it, however….  The kitchen, while functioning, was really in need of updating.  There was an addition that was hideous and did not match the house at all.  There was no basement.  The upstairs bathroom was atrocious.  Still, we liked the house and put an offer in at $360,000.  Someone else out bid us and we lost the house.  (We found out later that the people who out bid us ended up backing out of the contract, but we were too far in with the next house to go back to this one)
  • Feb. 10, 2012            Found the farm house.  The house wasn’t for sale, but we noticed it was vacant.  We searched public records to find the owner.  Public records of all property owners can be found through your county’s clerk and recorder’s office.  Most seem to have a web site that you can find this info on, so you shouldn’t need to go into the office and dig through records.
  • March 1, 2012           Received an O&E from the Title Company.  An O&E report is an Ownership and Encumbrance Report.  This shows all the liens on the property.  Or at least it should….our report (ordered from Heritage Title company) showed only the mortgage on the property.  Where it lists Judgements, the report said “None”.  We found out later that Heritage Title Company had messed up and there was, indeed, a judgement on the house.
  • March 2, 2012           Had inspection done on the property.  We thought the inspection would help back up our offer to the bank.
  • March 10, 2012        Our house went on the market
  • April 5 (ish), 2012     Sent our offer in for the short sale on the farm house.  We figured the house was worth around $235,000 and offered 95% of that amount.
  • May 6, 2012              Received an offer on our house (full price, yay!).
  • May 21, 2012            Received full title report on the farm house and noticed the Judgement on the property.  When we asked Heritage Title why it wasn’t on the O&E, they said it must have gotten missed.
  • June 7, 2012              Appraisal done on the farm house.  It came in at $175,000… $43,000 LESS than we offered.
  • June 13, 2012            Original auction date.  This is the day the house was set to go to public auction.  We didn’t know that it had been postponed until two days earlier (the 11th).  We thought we may lose the house at the auction and when we learned it was postponed, we were overjoyed.  If you want to research a house that you are trying to buy, check your county’s public trustee office.  They typically have these records.
  • July 3, 2012               Paid off Judgement.  After 6 weeks of trying to locate the company who held the judgement against the property, we were able to settle the judgement for far less than the original amount owed.  The judgement was for nearly $40,000, we settled it for $5,000.  At this point we are gambling $5,000 to get the house.  Very tough gamble to make, but worth it if it pays off.
  • July 11, 2012             Switched title companies after Heritage Title had taken over a week to process the paperwork to clear the judgement off the title and still hadn’t gotten it handled.
  • July 13, 2012             We closed on our house we were selling and were officially “house-less”
  • July 16, 2012             Received clear title from new title company, sent in new offer to the bank on the farm house for the appraised amount of $175,000.
  • July 23, 2012            The bank is requesting a BPO because the appraisal came in so low.  A BPO is a Broker Price Opinion.  Basically it is when a real estate broker provides an “appraisal” on the property.  It is much cheaper than an official appraisal, but also much less accurate and cannot be used for loan approval from the bank.
  • August 11, 2012        Finally spoke with the bank today and apparently an outside BPO was done in late July.  It came in at $285,000….$110,000 more than our appraisal.  They’ve requested a full BPO that includes the inside this coming week.  The outside BPO can’t take into account the fact the state of the interior of the house.  I’ve put set the lock box to say “SAD” so when they come, I’ll know they were here…then we’ll be happy!

SAD lock box

  • Sept 5, 2012     We received word from the bank that they needed to net $210,00 in the sale.  We submitted a revision to our offer that would allow the bank to net the amount they want after paying all closing costs and were extremely excited because we thought this meant the short sale was going to go through.  Later in the day, however, the bank informed us that the BPO we had been waiting for since August 11 still had to be done in order to complete the short sale package.
  • Sept 6, 2012     The BPO was completed today, but no clue when it will be submitted to the bank.  The house is still listed to be auctioned on Sept 12.  The bank has until 9am on the 12th to stop the short sale.  
  • Sept 10, 2012    The bank called and the BPO came in at a higher number, so they needed to increase the price they want to net to $235,000.  We either accept this number or we lose the house.  We are really stuck between a rock and a hard place, but this is our dream house.  This is my happily-ever-after house.  We’ve lived at this house for a month and a half and we love it here.  So, we begrudgingly accept the higher offer.  It feels like we’re being screwed, but I keep remembering that in Jan. we offered $360,000 for a house that, even though it looked a bit better on the surface, it really needed just as much work as this house.  Hopefully the bank will be able to call the house off the auction block today, will send us our approval letter, and we can breathe a bit easier.  Then, we have to get to work on the house in order to get it to appraise by our bank.
  • Sept 11, 2012    The house was due to go to auction tomorrow and it has been pulled off the auction list.  This means the bank has accepted our number and we should be getting the acceptance letter today.  

What I’d advise you do differently….

First off, order an O&E from TWO different title companies.  Had we known March 10th about the judgement, there is a good chance we would have closed on the house a month or so ago.  I fully believe that Heritage Title is fully responsible for us being house-less right now.  If we had pulled the document with two different companies, the likelihood is high that one of them would have had the judgment on the paperwork.

Second, this is a tedious process.  Be patient.  I am not patient and it KILLS me sometimes.  If I was able to just let go and let the process happen, I would have much less stress in my life.

BUT, you must also be motivated and not let any roadblock set you back!  When you come against opposition (for us it was the judgement and the appraisal), think outside the box for solutions and KEEP trying.

Try to stay positive.  This can be very difficult, but enjoying the little things, enjoying the people around you, and practicing good “karma” go a long way in keeping your chin up.

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