Do you have any experience with short sales? I need some help?

My parents listed the house through short sale at $215k and officially goes on the market Tuesday. Well I am actually interested in real estate to begin with and I want to know how this process works so have a few questions (that my parents don't really know the correct answers to)

1. In general, how long does the BANK part of it take?
My dad said even if someone takes the house Tuesday when it goes up it will still take 3 months for the bank to deal with it, true?

2. When someone purchases our house are we then in the clear to move out and start renting another place? If no, please explain why and at what time it is okay to do so.

3. Do we stop paying the mortgage and house payment when the bank accepts our house and the new buyer's offer?
Additional Details
yes there is a second mortgage, sorry.

I just purchased a house. I am not any kind of real estate professional but I have just recently been through a little experience with the short sale listed houses.
Short sales are unattractive due to the bank having the power. You did not say, is there a 2nd mortgage on the house? Imagine two banks having to split the incoming financial offer! Banks can't agree on splitting lower than what they originally financed the house for.
Whatever you list the sale price at, the bank must approve of the sale and the new buyer. I read one story ( during my house hunting and asking my realtor,"Why don't I want a short sale house?", of a family falling "in love with a house". It was in short sale, they made the offer, the bank accepted it , it went to closing and the bank "changed it's mind and the sale fell through". This occurred three times SO FAR. They have been pursuing this same house for over a year, resubmitting offers, here in Portland Or. There story was posted Nov 2009. Good luck
So question no. 1) there is no logical time unit. The other answer I've received is that the bankers are inundated with the recent $8000 tax credit and the short sale gets stacked up and set aside. Not a priority.
2) You can rent another place immediately, except you will be responsible for your house's mortgage ( shoot , i'm guessing) all the way up to the house successfully closing.
3) This requires a little more investigation. I was told , that in a short sale, you can quit paying the mortgage immediately. Let the home ride the short sale market. But it will be a matter of time and legalities, the house will go into foreclosure and your parents personal credit score will be shot!

Short sales can be complicated at times and there are many different factors that go into determining if the bank will accept a short sale. Keep in mind, that the seller needs to prove a hardship for the lender to accept a short sale (loss of job, divorce, etc...). Most short sales never close for various reasons.

1. Every short sale is different and there is no set timeline for a short sale to be accepted. It can generally take anywhere from 3-6 months for an approval. The fastest I've gotten one is one week after submitting the paperwork (very rarely will happen) and the longest I've waited is about 9 months or so. Every short sale is different from the next and the length will depend on who the lender is, the number of mortgages, is there pmi, who the investor is, other attached liens, etc...

2. When a lender agrees to a short sale, they will issue an approval letter outlining all of the info and guidelines that need to be met in order for them to accept the short sale and release the lien. They will typically grant you either 30 or 45 days to close (I normally see 30 days in my approvals and have seen 15 days). If the buyer still needs another week or so to close, many if not most lenders will grant another week or so to close, although some do charge a per diem fee that needs to be paid at closing. When the approval letter is issued and the parties agree to it, you can move forward with the closing. Buyer can inspect the place and get an appraisal if necessary and/or required. You should start looking for a place so that by the time closing takes place, you can move out or be already out.

3. You send the mortgage for the last month that you are in the property. Keep in mind that many times, when a borrower is current on their mortgage payments and can afford the payments, it can take longer to get an approval. Don't stop paying the mortgage, but you are asking the lender to take a loss on a home that you can afford, so the lender is in even less of a rush to make this happen. They work at their own pace as it is.

There is a lot more to short sales than just this. For example, depending on your state and the type of loan you have, the lender can seek a deficiency judgment against the borrower for the difference. If you have assets, the lender can require that you either bring some cash to the closing table or sign a promissory note at closing for part of the loss. Other times, a lender will cancel the debt and issue a 1099-C for that debt. The IRS considers canceled debt as income and taxes would have to be paid on it. There are exemptions though as you may qualify for the Mortgage Forgiveness Debt Relief Act or other exemptions. Your best bet is to speak to an accountant about the tax consequences.

I probably missed a couple of things, but that is generally it.

Good Luck!

EDIT:

I forgot to mention that when a bank receives all of the required documents and a purchase contract, they will order an appraisal or BPO (Broker's Price Opinion). Based on what the value comes back at, the lender will either accept the offer, reject it or counter.

Second mortgages can make it tougher to get an approval. The first lien holder will only approve so much to go towards the second and if the second holds out for more, it will stall the process and even kill it altogether. The second can at times be harder to get them to accept a loss and not go after the borrower for the difference. Many times when they accept a short sale, they will not release the borrower from the debt and will reserve the right to come after themat a later date. If the borrower has assets, they can ask for money or come after them quicker before there is nothing left.

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