Second Liens and HELOCs in Short Sales: How to Get to Yes
Discover how to navigate second liens and HELOCs in short sales effectively. Learn strategies to secure approvals and achieve the best recovery for all parties involved.
Essential Questions to Ask Before Making an Offer on a Short Sale
Before making an offer on a short sale, ask essential questions to ensure a thorough understanding of the process, increasing your chances of a successful purchase.
TABLE OF CONTENTS
Introduction
Short sales can offer significant value opportunities, but they also come with unique challenges and risks. Unlike traditional transactions, short sales involve a third-party decision maker—the lender—who must approve the sale for less than the outstanding mortgage balance.
Before submitting an offer on a short sale property, savvy buyers and their agents should thoroughly vet both the property and the current status of the short sale process. This guide outlines the critical questions to ask the listing agent to help you determine whether a particular short sale opportunity is worth pursuing.
Understanding the Short Sale Stage and Structure
Loan and Lien Structure Questions
- What type of loan is on the property? (FHA, VA, conventional, private, hard money)
- How many liens are on the property? Multiple liens can significantly complicate and delay the process
- Who is the primary loan servicer? Some servicers are known to be more efficient than others
- Do you know who the investor is behind the loan? (Fannie Mae, Freddie Mac, private investor, etc.)
Why this matters: Different loan types follow different guidelines. FHA and VA short sales have specific timelines and requirements, while conventional loans may have more flexibility. Multiple liens mean multiple approvals needed, which can extend the timeline significantly.
Current Process Status Questions
- Has the complete short sale package been submitted to the lender yet?
- Has the lender acknowledged receipt of the package?
- Is there already an offer submitted, or are you collecting offers to submit?
- If submitting multiple offers, how do you determine which one gets priority?
- Do you have a negotiator assigned by the lender yet?
Why this matters: These questions help you determine where the short sale stands in the approval process. If the package hasn't even been submitted yet, you could be looking at a much longer timeline than if the lender is already reviewing offers.
Valuation and Pricing Strategy
BPO and Appraisal Questions
- Has a Broker Price Opinion (BPO) or appraisal been conducted yet?
- If yes, when was it completed? (BPOs are typically valid for 90-120 days)
- Do you know the BPO value range or have any indication of what the lender considers acceptable?
- Is the current list price based on lender feedback or just a strategy to attract offers?
Why this matters: If a BPO has been completed, the lender has already established an acceptable price range. If the list price is significantly below this range, your offer may need to be higher to get approved. If no BPO has been done yet, there's more pricing uncertainty.
Offer Strategy Questions
- How many offers have you received so far?
- What is your strategy for multiple offers? Do you submit all of them or just the best one?
- Does the lender allow for backup offers if the first one falls through?
- What factors besides price do you consider when selecting an offer to submit?
Why this matters: Understanding the competition and how offers are handled helps you structure your offer to stand out. Some listing agents submit multiple offers, while others select just one. Knowing the strategy helps you position your offer effectively.
Timeline and Foreclosure Status
Foreclosure Timeline Questions
- Has a Notice of Default or Lis Pendens been filed?
- Is there a scheduled foreclosure sale date?
- If yes, when is it, and has any postponement been requested or granted?
- What is the timeframe for the lender's response to submitted offers?
Why this matters: The foreclosure status directly impacts how much time is available to complete the short sale. If foreclosure is imminent, the short sale may not have enough runway to close, making it a higher-risk proposition.
Expected Timeline Questions
- Based on your experience, what is the realistic timeline for lender approval in this case?
- How long have similar short sales with this lender taken to get approved?
- What is your communication process for keeping buyers updated during the waiting period?
Why this matters: Setting realistic expectations about timelines is crucial for buyers. Short sales can take anywhere from 45 days to several months for approval. Regular communication during this period is essential to keep buyers engaged.
Potential Complications and Red Flags
Title and Ownership Questions
- Are there any known title issues with the property? (tax liens, judgments, HOA liens)
- Is the property part of a divorce, estate, or bankruptcy situation?
- Are all owners on the mortgage also on the deed?
- Are there any tenants in the property? If yes, what are their rights and the plan for vacancy?
Why this matters: Additional liens or complex ownership situations can delay or derail a short sale. Tenant situations may also complicate matters, especially if relocation assistance is required or eviction becomes necessary.
Seller Cooperation Questions
- How cooperative have the sellers been with providing documentation?
- Are they responsive to requests from the agent and lender?
- Are they requesting any relocation assistance as part of the short sale?
Why this matters: Seller cooperation is crucial for short sale success. Unresponsive sellers who don't provide required documentation can cause significant delays or even failure of the short sale process.
Agent and Negotiator Experience
Experience Assessment Questions
- How many short sales have you successfully closed in the past year?
- Have you worked with this particular servicer/lender before?
- Are you working with a third-party short sale negotiator or handling it directly?
- What's your success rate with short sales that reach the offer stage?
Why this matters: Agent experience directly correlates with short sale success. Experienced agents understand lender requirements, have established relationships, and can navigate complications more effectively.
Process and Strategy Questions
- What strategy do you use for challenging low BPOs or negotiating lender counters?
- Do you typically request deficiency waivers for the sellers?
- How do you handle commission negotiations with the lender?
Why this matters: These questions reveal the agent's level of sophistication in handling short sales. Experienced agents have strategies for every aspect of the process and can advocate effectively for all parties.
Making an Informed Decision
Printable: Red/Yellow/Green quick sheet
- Green: package submitted and acknowledged, BPO done, single lien, responsive sellers, no sale date
- Yellow: multiple liens identified, package in but not acknowledged, foreclosure filed but not imminent, minor title items in progress
- Red: no package submitted, imminent sale date with no postponement, uncooperative juniors, major title problems, unresponsive sellers
Offer skeleton (agent-ready)
- Price: aligned to recent BPO range or in‑contract comps
- EM: refundable until approval; second deposit within 3 business days of approval
- Clocks: inspection/financing/appraisal toll during lender review and restart upon approval
- Close: 21–30 days post‑approval
- Attach: DU/LPA or proof of funds ≤ 30 days, lender letter acknowledging short sale timelines
Buyer vetting one‑pager (hand to clients)
- What to expect: 45–120 day approval window
- What you’ll do now: inspections early, docs ready, weekly check‑ins
- What protects you: approval contingency, refundability, clock restarts
Red, Yellow, and Green Flags
Green Flags (Favorable Conditions)
- Experienced listing agent with proven short sale track record
- Short sale package already submitted and acknowledged by lender
- BPO completed with clear value guidance
- Single lien with cooperative servicer
- Responsive, cooperative sellers
- No imminent foreclosure date
- Clear title with no additional liens
Yellow Flags (Proceed with Caution)
- Agent with limited short sale experience
- Package submitted but no lender acknowledgment yet
- Multiple liens but all lenders identified
- Foreclosure started but not imminent
- Minor title issues that are being addressed
- Uncertain timeline but communication systems in place
Red Flags (High Risk)
- No short sale package submitted yet
- Inexperienced agent with no clear process
- Imminent foreclosure date with no postponement
- Multiple liens with uncooperative junior lienholders
- Significant title problems (tax liens, judgments)
- Unresponsive sellers or disputed ownership
- Bankruptcy, divorce, or probate complications
Preparing Your Offer Strategy
Offer Templates That Win (Adjust to Local Forms)
- EM: modest first deposit, second deposit within 3 business days of lender approval
- Inspection: limited to material defects; clocks restart upon approval
- Appraisal: capped gap coverage or right to cancel/renegotiate if short
- Financing: conditional approval by day 10 post‑acceptance; appraisal ordered within 48 hours
Email Scripts to Listing Agents
- Initial vetting
- “Confirm package status, BPO date/value window, lien count, foreclosure milestones, and whether a negotiator is assigned. We’ll tailor our offer and timelines accordingly.”
- Submission cover
- “Clean offer attached with proof of funds and DU/LP. EM refundable until approval; second deposit on approval. We accept a 21–30 day close post‑approval.”
- Weekly check‑in
- “Any movement on intake/valuation/negotiator status? Our buyer remains committed; proof of funds refreshed.”
Red‑Flag Response Playbook
- Imminent sale date → ask for postponement upon submission; provide proof of ready buyer
- Multiple liens → engage juniors early; outline allowed contributions
- Inexperienced listing agent → provide helpful checklists and keep cadence yourself
Mistakes to Avoid (Buyer Side)
- Demanding non‑refundable EM before approval
- Long inspection windows that undermine certainty
- Under‑documented financing letters
Quick FAQ (Agent)
- Can we submit backups? Yes—get them signed where allowed, with position disclosed
- Should buyers inspect before approval? If access allows, yes; reduces retrade risk
- How long should we keep proof of funds valid? Refresh every 30 days
Buyer Qualifications
Before making an offer, ensure you're prepared with:
- Strong pre-approval with a lender experienced in short sales
- Proof of funds for down payment and closing costs
- Flexibility on closing dates to accommodate lender timelines
- Willingness to proceed with inspections before short sale approval
- Patience and understanding of the extended timeline
Offer Elements That Appeal to Lenders
- Clean offers with minimal contingencies
- Reasonable price based on current market conditions
- Proof of financial capability (pre-approval letter, proof of funds)
- Flexibility on closing timeframe
- Minimal seller concessions (lenders typically reject excessive seller credits)
Conclusion
Making an offer on a short sale requires thorough due diligence to assess both the opportunity and the risks. By asking these critical questions, you can better evaluate whether a particular short sale is worth pursuing and how to structure your offer for the highest chance of success.
Remember that patience is essential in short sale transactions. Even with all the right elements in place, approvals can take time. Working with experienced professionals who understand the nuances of short sales can significantly improve your chances of a successful purchase.
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