Ask The Expert: Bank Approval on Short Sales and Foreclosures

Q. I’m about to start looking for homes, and I have heard that short sales and foreclosures take a long time to be approved. How long does it usually take, and why is it longer than a “regular” sale?

A. Yours is the six million dollar question! The process and therefore the time periods for approval of short sales and foreclosures are different. On a short sale, the length of time for approval is dependent upon many factors.

First of all, is there real hardship on the part of the seller? That could be loss of a job, divorce, medical bills, etc. (Contrary to popular belief, the property having lost all equity is not considered hardship by the lender.) Without a true and provable hardship, there will be no approval of a short sale. In addition, if there are assets held by the seller that allow him to pay off the mortgage, there will be a denial of the short sale. So be sure there is a provable hardship before you bid on a short sale. Next, who holds the lien, or liens, against the property? One lien only makes for an easier, faster short sale. Two or more liens becomes more complex, and a longer process. However, if all liens are held by the same lender (say, Wells or B of A) the process is usually simpler, and therefore faster. So best case scenario is one lien, or one lender. Make sure your Realtor is checking on the amount, and holder, of the lien (s). Once a buyer is located for the property, approval of the short sale is requested from the lender. A completed package must be submitted to each lender, including all listing and purchase agreements, fully executed and dated by all parties; all necessary addendums; a hardship package, containing the hardship letter and supporting documentation; two years of tax returns, W-2’s, and all household bills; and a HUD-1 form. If any of the documents are missing or incomplete, this will add time to the approval process, and the file goes back to the bottom of the stack. (Hence the necessity of working with a Realtor who is trained and certified in the Short Sale / Foreclosure process!) The lender will obtain an appraisal and/or a Broker Price Opinion, to evaluate whether the offer made by the purchaser is a valid one, based on market conditions. ( With a valid reason, or a relationship with the bank, the lender will perform a “rush” appraisal; I had one this week requested 24 hours from receipt of the package.) The entire approval process takes anywhere from 30 to 90 days, after which the lender gives approval for the short sale, or gives approval subject to a higher sales price, or denies it altogether. The process was taking longer, but many lenders have worked diligently to streamline their short sale process, resulting in shorter approval times. If approved, the buyer is generally given 30 days to close the transaction, or the property must be resubmitted for a new approval. On a foreclosure, the process is different. One lender owns the property, and is marketing the property at a price that has been predetermined by them as acceptable. Once your offer is submitted to the bank, you can generally expect a response in 7 to 21 days as to whether it is acceptable. The one caveat is if the bank is leaving the purchase open to the best offer for a period of time, say, 30 days, and choosing the best offer at that time. I cannot stress highly enough that you work with a Realtor with certification and experience in the short sale / foreclosure process. It is a murky process, at best, and you want an ally in your corner working on your behalf with the bank.