This article is to lay out the basics of a Las Vegas short sale. Let me begin with the definition, a short sale is essentially a real estate transaction where a lender who holds the note against a property approves a purchase contract between a legitimate buyer and seller for an amount that is less than or “short” of the total amount owed to that lender.  These transactions are not easily accomplished. Having a very experienced real estate agent who can demonstrate a high level of commitment and service is crucial to the success of a short sale, especially on the listing (selling) side of the transaction.

Normally, a seller considers a short sale when they can no longer afford to make their payments. If they have equity in their home, they could simply sell the home to rid themselves of the payment. Unfortunately, many people’s homes are now worth less than what they owe. This has become commonplace, especially here in the Las Vegas real estate market, with prices down around 40% from two years ago.

If you’re a buyer looking to purchase a short sale, you should be prepared to wait once you have submitted an offer. Most approvals take 1-2 months to achieve and then you still have to go through the normal closing process once you have an approval in hand. If you’re on a tight time schedule to purchase, you had better think long and hard about whether a short sale makes sense for you. Once a buyer and seller have come to an agreement, the buyer is essentially forced to wait on the sidelines while the seller works to get 3rd party approval for the sale from his bank(s).

If you’re a seller considering a short sale, make sure you have explored your options regarding loan modifications first. My colleague Tony Sena recently authored an excellent article regarding loan modifications impacting short sales. Once the short sale process has begun, if you explore doing a loan mod, your bank just shuts down the short sale activity and can cause you to begin all over again! If you have a buyer and you’re proceeding along, you risk losing that buyer if your bank makes you start over from square one. Just check into doing a loan mod first to avoid conflicts, but don’t let them waste too much of your time. If you are already behind on your payments, the clock toward foreclosure is already ticking.

Once you list your property for sale, your agent will market the property as a short sale so that all parties know exactly what the process will involve. The transaction proceeds on two fronts. The first is the real estate side. This entails the usual elements, listing the home, offers, counters, acceptance, escrow, closings etc. The second path is that relating to the negotiations with your bank. This is the meat of a short sale and where most often they break down. Here is what needs to happen:

1. Your agent will obtain from you, financials for the past two years (tax returns, recent pay stubs, and your loan info).
2. They will also have you sign an authorization that allows the agent to speak to your bank about your loan and negotiate on your behalf.
3. You will also be directed to write a hardship letter describing your circumstances and why you feel you should be allowed to do a short sale on your home. This is VERY IMPORTANT: the bank doesn’t have to comply with your request, so drafting an impactful letter combined with an accurate financial picture will go a long way to obtaining a short sale approval letter.

Your agent will submit the short sale packet mentioned in the previous paragraph along with any valid offer. With some banks, it may even be possible to seek an approval without yet having an offer. Once the bank receives this packet, they will begin the review process. This usually takes 2-4 weeks. If the bank approves the file to move forward, it will order either an appraisal or an agent valuation called a BPO (Broker Price Opinion). If the valuation obtained by the bank is in line with the offer, the bank will assign a negotiator to begin working with the listing agent. Essentially, what the two sides will negotiate on are the purchase price and the costs to settle the transaction.  These costs include but are certainly not limited to: contributions to the buyer, taxes, payoffs of any home owner association balances, sewer and trash, commissions and most important, whether or not there is a 2nd mortgage on the property. If the 2nd mortgage is the same bank as the first, having a 2nd will not be a difficult impediment. If the 2nd is a different bank, it can get very tricky. Remember that the 2nd is just that, they are behind the 1st note, government and HOA’s in the proceeds’ hierarchy. Since most properties here in Las Vegas have fallen so far, there is virtually no money left over to pay a 2nd. In fact, they might often receive $1,000 on a $50,000 note! This means they are not very cooperative. Your agent will have their work cut out when trying to get the 2nd bank to play ball.

Once you have received your approval letter from your bank, you can then proceed to escrow and hopefully on to a successful close. This doesn’t sound too bad you might think after seeing me outline the process. Please keep in mind that this is just that…an outline. The logistics and response delays thrown at your agent are extremely frustrating, and can threaten to undo his/her efforts at nearly every turn. Your agent literally has to overcome your bank to make the short sale happen, so go out and find a good agent!

Paul Rowe is an agent with North American Realty of Nevada and five year veteran of the Las Vegas real estate market.

Las Vegas Loan Modifications, Las Vegas Real Estate, Las Vegas Short Sales las vegas loan modification, las vegas short sale process, Las Vegas Short Sales