Many misconceptions are made by homeowners and even realtors who believe the short sale process in Arizona is too time-consuming, unprofitable, and overall not worthwhile. As an Arizona short sale realtor, let’s break down the process together
Here are 10 important aspects of how the short sale process in Arizona actually works:
What does it mean to do a short sale?
It’s important that a short sale is not confused with a foreclosure. In fact, there are many reasons why a homeowner may need to do a short sale other than possible foreclosure, including job displacement, job loss, and divorce. Because the value of the property has declined or further loans against the property have been taken out, it may occur that the amount owed on the home exceeds its market value – and this is when a short sale comes in handy.
An Arizona short sale requires the homeowner to request to their mortgage lender that the bank accept a loss, in order to pay back less than is owed.
In most cases, banks do not want to own property, which is why they seek to avoid foreclosure. Short sales are a good alternative, and most banks will work with the seller when they have fallen behind on payments. To save time and money, to make the situation simple, and to avoid getting into the real estate business, the bank will most likely approve the short sale.
From the perspective of the bank
Lenders do not want to lose money. After all, in a situation where someone owed you money and asked to pay back only some of it, how would you react? Banks will only accept a short sale as the best case scenario, after reviewing all the options and deciding that nothing better can come about. In completing an Arizona short sale, banks will investigate and thoroughly check the homeowner’s situation. Most have specific processes in place to ensure that the homeowner is authentic with their request and inability to finance remaining payments. This means if you say you have no assets and little income, they will ask for bank statements, W2’s, and tax returns to prove it.
What things must be provided to the bank?
The short sale process in Arizona begins with a short sale package given by the bank to the homeowner to complete and return to them. The package is very similar to a pre-approval loan package and will require such things as a completed financial worksheet, the previous two years’ tax returns, prior pay stubs and bank statements, and a letter detailing the specifics of the situation and the reason for filing for a short sale. The homeowner must also provide to the bank ownership documents (purchase agreement and proof of financing), approval by a third party real estate agent, and a short sale settlement statement. Your Arizona short sale realtor can usually provide you with the entire short sale packet, although your lender may require more documents after your initial packet is turned in.
Before approving the short sale, the bank will perform an appraisal of the property and situation, in order to make sure that they are receiving the maximum possible amount for the home and that all the requirements of an Arizona short sale are met.
Arizona short sale review process
The review process for a short sale is a back and forth negotiation. It generally consists of a team of experts and bank negotiators who review the application packet and consider possible solutions before making a final deal. The seller will be involved in this process, as he/she will most likely be presented with a counteroffer that includes the seller contributing to the cost of sale, in order for the bank to make back some of the lost money, if they believe the homeowner can afford to do so. This should be expected; a payment plan can be worked out and additional details can be ironed out by your Arizona short sale realtor. The listing agent’s commission and certain fees and closing costs may be reduced. All of this is normal in the review process, and all sellers should walk in with an open mind and willingness to compromise.
Why would an intentional missed payment be required?
As surprising as this may sound, as soon as you are made aware that a short sale is looming in your future, waste no time in missing a payment. Missed mortgage payments will speed up the short sale review process, especially if you have good credit. This is probably confusing to a lot of people and perhaps even difficult to do at first thought. Please understand, however, that missing one or more payments will help the bank take the short sale proposal more seriously.
One of the biggest factors in the short sale review process is the status of your mortgage payment. Most banks actually require that payments are missed before approving a short sale, by 30, 60 or 90 days. In fact, if you have been able to just get by each month and are now applying for a short sale, chances are the bank will make you wait 30 – or even 60 – days before continuing with your application.
But if you are unsure, it is best to consult with your bank or agent. To avoid this unfortunate, perplexing hurdle in the Arizona short sale process, ask your realtor to see if it is possible to maintain payments & complete a short sale. Otherwise, you may need to miss your mortgage payments, (and have no shame in doing so!)
Are you facing foreclosure?
Although there is no set timeline on when banks HAVE to start the foreclosure process, in Arizona it is a fairly quick timeline to the auction date once they do start the foreclosure proceedings, though. You will be facing foreclosure if 90 days have passed since the foreclosure process starts and nothing is done to delay the auction date (workout plan, short sale, etc).
Interestingly enough, because the short sale, foreclosure and loan modification branches will most likely not be working together, it may not be known that you are currently completing a short sale. At this stage, a terrible end result can occur. Even if you are nearing the end of the short sale process, it is important your Lender, realtor, and anyone else working on your short sale are all communicating and keeping track of the foreclosure dates. You don’t want your house to get foreclosed, causing you to lose everything you had been working toward.
Be prepared and stay on top of things
As a homeowner, you must remain in the loop and aware of all proceedings that are taking place. Know the requirements to complete a short sale and the exact items that will be required by the bank. Obtain the short sale package early and get started on it immediately. Make sure your Arizona Short Sale Realtor is in constant contact with the loss mitigation departments for your lenders.
Your real estate agent should also be fully prepared with every single piece of information/paperwork that is required and available. The agents are responsible for getting all paperwork together and sending it to the bank before the property is listed or as it is being listed. Not only will this speed up the short sale process, but it will make it easy for an offer to be accepted and a deal to be closed.
Interested buyers will also benefit from all paperwork being filed, and this may be a major turn-on to potential buyers who favor a speedy completion process. As a buyer, it is your job to ask questions regarding the process, including: Has contact been made with the bank? Have documents been turned in? What more is needed before I can make an offer? How long will the remainder of this process take?
Where else does the short sale get complicated?
Errors and missing documents are the main reason why short sales get stuck somewhere along the way. The banks require a lot of paperwork to be filed before the short sale can be approved, and it isn’t uncommon for sellers and agents to forget something or make a mistake, such as putting the wrong date on a bank statement or supplying insufficient tax information. Unfortunately for everyone involved, one blip can result in a delay.
Even in 2012, banks require all documents to be faxed, and this can also result in something turning up as missing, lost, out of order, etc. The bank will not know what’s missing – as the seller, it is your responsibility to remain cognizant of the situation and your realtor will be continuously checking with you to ensure that everything is completed and the short sale is moving forward.
The bank will call the seller and/or agent to confirm the faxed documents, which can be close to 200 pages altogether. From here, your case will be given to a processor, or the person who reads through the documents. You will get his/her phone number and be able to confirm the status of your package with him at all times. Staying in touch with your Realtor and turning in documents as soon as requested will lead to minimal complications and an overall smooth transaction, which will ultimately benefit everyone involved.
Negotiations and waiting for approval
Approval will come as soon as the paperwork hits the negotiator’s desk and he/she reviews the situation before reaching a conclusion. Once your short sale has been approved, the sale process will begin, in which changes to the package and agreement will not be made. The bank prefers that all final fees and adjustments are made during negotiations, with the final product sold “as-is,” to ensure the selling process also runs smoothly. It should be noted, though, that changes can be made, depending on the situation, and that all sellers should remain open-minded.
Advice to Sellers, Agents and Buyers
The short sale process in Arizona will differ slightly from seller to seller. All situations are different, and patience is instrumental in reaching a successful outcome. The process can take as little as one month or as long as nine months, if not longer. Always be aware that unexpected events can occur, and even the most experienced agents and knowledgeable buyers and sellers should walk into a short sale with an open mind, although having an experienced Arizona short sale realtor can take most of the headache and stress out of the equation for you, the seller.
Unfortunately, this is especially important for buyers who may come across a nice home with an undesirable situation, such as an unfamiliar agent or incomplete paperwork. Regardless of how good the short sale is, you may just have to walk away.
Whether you are a buyer, seller or real estate agent, starting and completing a short sale in Arizona is becoming easier and working with an experienced team can make all the difference.