A short sale is anything but short, at least in the amount of time it takes to purchase the home. When you decide to make an offer on a Short Sale home, be prepared to wait a long, long, long, long, long time. Here is the reason why:
Red Tape
There may be more than one loan on the property. Any company that the owner borrowed against the house for is call a lienholder. They could be a contractor, bank, or PMI company.
There may be unpaid back taxes, and they place a lien on the property.
There may be unpaid association dues, and they place a lien on the property.
All lienholders have to sign off on the property in order to sell it short of what is owed. Some lienholders may get nothing when the property is sold. You can see that they are not motivated to return any paperwork! The more lienholders that have their claim on the property, the less likely it is that everyone will reach an agreement.
The owner of the property must complete a " hardship package ". This can consist of a letter, stating why they can no longer make their payments, pay stubs, bank statements, investment statements, and anything else that the bank requires of them. This should be submitted prior to the time the house is offered for sale, but often it is not. Even if it is, the bank may not even take a look at it until they have a bonified offer. If the paperwork is not filled out correctly or documentation is missing, the file goes to the bottom of pile, and the negotiator or asset manager will get to it when they get to it. (They work on the easy files first)
A net out sheet is prepared, usually by the realtor or title company, and sent in. This can be done once the offer is recieved, and shouldn't take more than a few days to compile. It will, however, take a week for the bank to catch it up with the file!
A property appraisal must be completed, often not ordered and completed until an offer comes in. The appraisal process can take about 2 weeks.
Once the appraisal report is recieved, the file goes to a committee, and the offer price is evaluated against the appraised value. Usually the offer price must be within a certain percentage (determined by that lender's policy) of the appraised value. The bank will accept the offer or make a counteroffer at this point. Expect to wait at least one month from the date the offer is written to get to this point in the process. I am currently working on a house that is in week 10, and we have just gotten here. I once had a client tell me that they waited 5 months to then have their offer rejected by the bank.
Now it is the buyer's turn. Once everyone agrees on the price, the buyer can complete their home inspection, and the title committment ordered. The buyer's loan company will complete an appraisal (yes, another one--the buyers loan company will only accept appraisals performed by their approved list of appraisers), and the loan processor will prepare the package for the underwriter. All of this is accomplished in an average of 2 weeks time.
If the title is clear, the home inspection is acceptable, and the underwriter agrees to underwrite the loan, it can be scheduled to close. In a normal sale, this whole process takes about 3 to 4 weeks. With the sale that I described above, it will be about 12-14 weeks total time.