Short Sale Basics for Buyers

What is a short sale?  A short sale is when the lender agrees to accept less than the amount owed against the home because the property has experienced a loss in value.  The seller must typically demonstrate some type of hardship (increased payments, loss in income, need to move, etc.).  It is also important to know that because there is a hardship, the seller typically WILL NOT come out of pocket for any of the closing expenses.  These will need to be approved by the lender(s) who currently hold a deed of trust on the property.

Due to current market conditions it may make sense to the mortgage holder to agree to accept less than the amount owed on the mortgage.  In many cases it is far less costly for the lender to accept a short sale than to face the process of foreclosure, marketing, maintenance and final sale.

Being a buyer making an offer on a short sale listing, you need to be aware that the process to successfully close a short sale will take patience on your part.  The first step is obtaining an acceptance from the seller subject to and conditioned upon the approval of the sale by the current underlying lender.  It should also be noted that there may be more than one mortgage on the property and that could extend the time required to reach an agreement with all the mortgage holders.   As a buyer you should also understand that there may be multiple offers submitted to the lender.  The lender typically has the final say as to which offer is accepted irrespective of who’s offer came first.  Some listing agents will disclose the amount of other offers and whether or not you are in first position, backup position, etc. 

Short sales will be a part of our local market for the foreseeable future.  Recent legislation encourages mortgage holders to be more open to alternative avenues to foreclosure such as short sales.  Mortgage holders are required by this recent legislation to negotiate in good faith with people who are facing the prospect of a foreclosure and a short sale might be the best business direction for the mortgage holder as well as the property owner.